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David Konning

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When you retire, it's important to ensure that your resources will support you throughout retirement. Will you have sufficient cash flow to maintain your lifestyle? What is the likelihood that you or your partner will outlive your available funds?

The answer is to create a financial plan that addresses these concerns head-on. What if you had a practical approach to reducing debt, maximizing the tax efficiency of your portfolio, and uncovering new sources of retirement income? How much better would you sleep at night knowing that you had a cash flow commensurate with your needs?

Do you find that your current lifestyle is about the same as it was before retirement, or has it changed significantly? Generally speaking, most retirees need at least 70 to 80 per cent of pre-retirement income to maintain their standard of living.

But your actual needs will depend on your health, family, financial obligations and your goals in retirement. Now is the time to take a realistic look at those issues and, with the assistance of a financial planner, craft a plan that eliminates your worries.

It doesn't have to be complicated; with some thoughtful planning, you can ensure your cash flow needs will be met. Questions to help you define your goals can include:

How do you wish to spend your retirement? How much income do you feel you will you need to support your retirement lifestyle?

Are you still working part time, or thinking about it? For how long will you need to support your family members?

What percentage of your capital do you want to spend during your lifetime? Leave in your estate? How willing are you to adjust your lifestyle?

Investment approaches that worked in the past are no longer sufficient to address the cash flow needs of today's active retirees. It's important to look at all of your investments and take a diversified approach to managing them for the maximum positive flow.

One of the best strategies for protecting yourself against inflation risk and longevity risk is to include sufficient growth-oriented investments in your portfolio. In addition, some growth oriented investments such as stocks can provide cash flow that is tax effective.

Outside of registered plans, capital gains and dividends from Canadian corporations are taxed at lower rates than interest income.

Since the various sources of investment income are taxed differently, it's important to structure your retirement portfolio to minimize the amount of tax you pay and maximize your cash flow. The difference in after-tax income for various sources of investment income can be significant.

Two-thirds of boomers expect to carry debt into their later years according to an RBC survey. In contrast to previous generations, boomers view debt not as a burden but as a flexible tool to be used as needed to accomplish life goals.

One such tool is a secured line of credit that carries a low interest rate and gives you access to cash for almost any need that arises in retirement. In fact, it might be more cost-effective in some instances to use a line of credit to cover an expense than to withdraw money from a registered retirement income fund (RRIF).

Note: The material in this column is intended as a general source of information only, and should not be construed as offering specific tax, legal, financial or investment advice. Individuals should consult with their personal tax advisor, accountant, or legal professional before taking any action based upon this information.

* David Konning is an investment and retirement planner at Royal Bank. He can be reached at David.Konning@rbc.com or by phone at 856-0406.