LIFE LETTER MATURE
The importance of retirement income diversification
One of the primary worries of many retirees is running out of money. This can be for any number of reasons, some of which are not enough savings or using only one method of drawing retirement income. The worries can be reduced or even eliminated by properly diversifying income methods.
There are a number of potential income sources in retirement and they include:
Now, the first three sources above are pretty much assured, long-term incomes that may increase with inflation. The latter three sources are less assured and can vary, or even run out. Some care needs to be taken when taking incomes from the second group, and the focus here can be on diversification.
Part of the process of income diversification involves allocating funds over various products to arrive at an income stream that meets the retirees needs, both short and long term. Some of the choices are:
Registered Income Funds (RIFs) - Plans that are intended to withdraw funds from Retirement Savings Plans (RSPs) only. There are certain limits on these plans regarding minimum minimum withdrawal amounts annually and sometimes on maximum withdrawal amounts.
Annuities - These plans are designed to provide a blend of principal and interest over a certain period of time or for life. RSP or non-RSP money can be used in these plans. They are generally locked in for the term of the annuity and may not have an estate value.
Systematic Withdrawal Plans (SWPs) - A method to draw a regular income from an investment, generally non-RSP funds. SWPs have a good opportunity for adjusting or even stopping income as needed.
Different income levels may be needed at various stages of retirement. A good income diversification strategy can make it more likely to have the proper income as needed.
There are no hard and fast rules that can be applied to designing retirement income streams. Work with your financial advisor to tailor a plan for you and your needs.
Diversify retirement income – because it’s the responsible thing to do.
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