Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

Smart withdrawal strategies that ensure a comfortable Retirement

By Rick Pendykoski

Special to the Financial Independence Hub

Retirement planning is critical — no doubt about that. You worked hard all your career to save enough money and now that you have comfortable retirement savings, you must ensure that it lasts you through the golden years. If you don’t handle the retirement savings properly, you will run out of money earlier than expected.

It is important to have a withdrawal strategy in retirement, which needs to be handled tactfully. The objective of a withdrawal strategy must be to help you provide with the income you need, minimize the effects of taxes, and keep your investment mix diversified and in line with your personal lifestyle and situations.

How Much To Withdraw

Withdrawal rates are the most important factor because you’ve got a limited supply of assets in retirement.

Consider your age, life expectancy, living expenses and rate of return on investment to determine an approximate withdrawal rate.

If you fall under the ‘healthy-have adequate savings-will retire by 65’ bracket, it would be a good idea to begin with a 4%-6% withdrawal rate during the first year of retirement. After the first year, you can build in the cost-of-living adjustment each year to account for the inflation.

5 Key Points to Remember 

  1. Consider the Withdrawal Strategy.


The simplest withdrawal strategy is to take assets from the retirement and savings accounts in the following order:

  • Minimum required distributions (MRDs), also referred to as required minimum distributions (RMDs) in the United States,
  • Taxable accounts
  • Tax-deferred retirement accounts, such as a traditional IRA, 401(k), 403(b), or 457
  • Tax-exempt retirement accounts, such as a Roth IRA or Roth 401(k)
  1. Tap Taxable Accounts First

Ideally, you must tap into the taxable accounts first as a source of income. When you use money from taxable mutual funds, individual stocks and other investments, you allow tax-favored assets to enjoy compounded growth for as long as possible.

Once the reserves of the taxable sources of income, which include personal savings, are spent you can move on to tax-deferred accounts, including traditional IRAs, 401(k)s, 403(b)s. This helps in delaying paying taxes on this money for as long as possible, until RMD withdrawals must begin.

Ensure that you are at least 59½ years before you take money from a tax-deferred account as you will incur a 10% early withdrawal penalty if you withdraw before that age, although exceptions to this rule do exist. Start taking distributions from your traditional IRA by the age of 70½ to avoid paying a 50 percent excise tax on the amount not distributed.

Leave Roth IRA as the last option as there are no minimum withdrawal rules for a Roth, thus allowing your earnings to grow tax-free.

  1. Check the Tax Bracket

It is important that you monitor the source of your withdrawals to understand the effect of the withdrawals on your tax rate. It will also avoid a move into a higher tax bracket.

  • If you withdraw any distributions at all from a tax-deferred account, it would result in undesirable outcomes that are not directly related to income tax but that are tied to taxable income like Medicare costs.
  • If you withdraw from a taxable account, it would require selling assets that are held less than a year, resulting in short-term capital gains, which are taxed at ordinary income tax rates.
  1. Limit Taxation on Social Security 

The government considers up to 85% of your Social Security benefits to be taxable. This formula depends upon taking into account other income sources, along with one-half of your benefits. You must manage your income in such a way that a smaller percentage of your Social Security benefits will be taxable.

  1. Have Sizable Emergency Funds  

Ideally, as a retiree, you should have a financial safety net in place to cover your living expenses for at least 1-2 years. Strive for an 8 percent investment return on average.

Smart withdrawing strategies from the retirement savings will guarantee you of a comfortable retirement.


Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last 10 years has turned his focus to self-directed accounts and alternative investments. Rick regularly posts helpful tips and articles on his blog at SD Retirement as well as, SAP, MoneyForLunch, Biggerpocket, SocialMediaToday and NuWireInvestor. If you need help and guidance with traditional or alternative investments, email him at rick@s

Will investing in your child’s business endanger your retirement?

By Dave Faulkner, CLU, CFP

Special to the Financial Independence Hub

Your son or daughter just asked you for a short-term loan to help them start a business. If everything goes well, they will pay you back with interest in a few years. But what if they never pay you back? How much will it impact your ability to enjoy your retirement?

RediNest is a personal financial planning application that you can use to get answers to your retirement planning questions.

How RediNest can help

John and Joan plan to retire in 10 years. Although they do not have a pension plan, they have $300,000 in RRSP and $100,000 in TFSA investments. With no mortgage, they are able to contribute the maximum each year to both RRSP and TFSA.

Using RediNest they calculated their Retirement Potential™ at $73,900 of after-tax retirement income, slightly more than the Canadian average* of $69,000.

Their son has asked them to invest $100,000 in his business. He has prepared a business plan, and expects to repay the full amount over five years. John and Joan want to fully understand the risks before loaning their son the money, so they modified their RediNest plan and reduced their TFSA balance to zero.

Assuming a worst case scenario where they never get their money back, John and Joan re-calculated their Retirement Potential to be $67,800, a reduction of over $6,000 / year for life! A significant amount when you consider it is after-tax and fully indexed for inflation. If they never get their money back, John and Joan want to understand the options available to them to restore their Retirement Potential, as they do not want to have less disposable income in retirement.

Using RediNest, John and Joan discovered they would have to increase their monthly savings by over $900/month for the next 10 years: something they feel they cannot do.

Deferring retirement by a year

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Retired Money: Is your pension covered by a Pension Guarantee Fund?

My latest MoneySense Retired Money column just went up and covers the subject of  a Pension Guarantee Fund for employer-sponsored Defined Benefit pension plans. The United States and United Kingdom both have versions of these but as the piece points out, the only Canadian province to have one is Ontario.

Click on the highlighted headline to access the full article: What to know about the Pension Benefits Guarantee Fund.

Earlier this year, the Ontario Government announced that its Ontario Pension Benefits Guarantee Fund (PBGF for short) was boosting the amount of guaranteed pension (should a plan go bust) from the previous $1,000 a month to $1,500 a month. But as I point out, depending on how a plan is funded, because of partial payouts in the case of plan insolvency, this actually means pensioners are protected for somewhat more than $1,500 a month.

So, according to my sources, in the case of a pension fund that’s 50% funded on windup because of a bankrupt plan sponsor, someone with a $3,000 monthly pension would receive $1,500 from the funded part of the $3,000 pension, plus $750 from the PBGF, which tops up the unfunded part of the first half of the pension.

Established in 1980, Ontario’s PBGF covers more than 1,500 DB plans and 1.1 million members in the province. Participation is mandatory for most DB plans registered in Ontario. As the article notes, the amount of protection is somewhat less than in the US and UK: the US one covers a whopping $5,000 a month. Even so, $1,500 a month sure beats the non-existent guarantees of the other nine Canadian provinces.

What if your pension is not covered by a PBGF?

One source in the article suggests that those in pension plans carefully scrutinize the solvency of their employers’ plans. And if you’re in a DB plan and don’t have any PBGF, you might consider taking the commuted value and rolling it into an RRSP or equivalent vehicle, where you’d have more control over the fate of your retirement funds.

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My RRIF playbook: what you need to know in 2017

“Retirement at sixty-five is ridiculous. When I was sixty-five I still had pimples.” — George Burns (1896–1996) Comedian, actor, singer and writer

There are three retirement accounts everyone ought to understand. They are the RRSP, the TFSA and the RRIF (Registered Retirement Income Fund).  I submit that the early part of each year is preferred to review the RRSP and TFSA. That leaves the RRIF to be dealt with well before year-end.

Start paying special attention to planning the RRIF, even if you don’t yet need one.

Be very mindful of the RRIF. Recognise its purpose and how it complements the other two accounts. Review it periodically to ensure it stays on track.

The RRIF is firmly entrenched as a prominent retirement planning vehicle, serving as an essential foundation of retirement nest eggs. For example, starting a RRIF at 71 implies long planning, often to age 90 or more: especially if there is a younger spouse or common-law partner.

Three conversion choices for RRSPs

RRIFs typically result from the aftermath of mandatory RRSP conversions. Three conversion choices include cashing the RRSP, purchasing a variety of annuities and using the RRIF account. The RRIF is most popular because it provides considerable flexibility. Avoid cashing RRSPs.

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5 common senior financial traps and how to avoid them

Scott Terrio’s Twitter feed (@CooperTrustee) reads like a financial horror story. Terrio, an insolvency expert at Cooper & Co. in Toronto, uses the 140-character medium to share the multitude of ways seemingly well-off Canadians end up buried in debt and turning to debt consolidation, consumer proposals, and even bankruptcy.

Canada’s record household debt levels have been a cause for concern for years, but Terrio sees a new problem on the horizon. Canadian seniors are the demographic increasing debt at the fastest rate.

Take Dorothy, an 81-year-old widow who owns a home with a 1st mortgage from a secondary lender. She refinanced a couple of years ago to do house repairs ($18,000), assist her son with divorce legal fees ($37,000), and to help her grandson with tuition ($8,500).

When her partner died she was no longer able to make the mortgage payments. A friend from church referred her to a mortgage broker.

The broker suggested a reverse mortgage,  which would let her stay in her house without the monthly mortgage payment. But the money from the reverse mortgage wasn’t enough to pay out the 1st mortgage after fees and penalties. She needed a private 2nd mortgage at 12 per cent to pay the balance.

Dorothy co-signed a $26,000 car loan for her nephew and co-signed with her son for funeral expenses ($12,000) for her partner. Her son stopped paying, so Dorothy was pursued (100 per cent).

She then ran into tax trouble by not having tax on her OAS & CPP deducted for the first few years. She owes $21,000 in tax, much of it penalties and interest.

This scenario is becoming more common among seniors today.

“Many are in a unique quandary. They’re asset-rich, but cash-poor. Cash flow is tight. Pensions are fixed, and many have underestimated retirement costs,” said Terrio.

So what do they do? Many seniors cash out assets to make ends meet. Others raid their home equity and take out lines of credit. All have financial consequences.

We asked Terrio to share the top financial traps seniors fall into and how to avoid them:

1.) Tax problems

Most seniors were used to being paid by their employers in after-tax dollars. At pension time, many don’t have taxes deducted to offset their Old Age Security and Canada Pension Plan income and therefore end up spending taxable pension income.

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