Which investments to draw down first in Decumulation phase?

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Jason Heath
By Jonathan Chevreau

Good piece by fee-for-service planner Jason Heath on the MoneySense website today.  At age 66, “Bob” has reached retirement and has savings in an RRSP and TFSA, as well as a holding company. He normally takes dividends from the holding company, which makes this a bit more complex drawdown problem than normal salaried employees. Heath says the corporation adds flexibility, which I’d agree with. First, he notes that business income earned and retained in the corporation is “somewhat tax deferred.” Only corporate tax is payable: personal tax occurs only when the money is withdrawn from the corporation. But if you invest those retained earnings, things get more complicated and there’s a case to be made to pay some or all of the investment income to yourself as a dividend.

Get a long-term plan to tax-optimize income sources

Then there are the more usual sources of retirement income to consider, including Old Age Security and the Guaranteed Income Supplement, which can be impacted by the withdrawals from the holding company.  Heath points out that unlike RRSPs or holding company withdrawals, TFSA withdrawals are tax-free. This rapidly gets complicated, which is why Heath suggests getting a professional to develop a long-term retirement plan that optimizes income sources from a tax perspective.

Heath suggests the MoneySense online directory of fee-only planners and in particular the fee-for-service section, as a good place to start. I agree, which is why we’ve listed it in the Hub’s Getting Help section as well as NAPFA fee-only planners for American investors and retirees. Heath himself is also listed on the Hub’s supplementary list of “professionals who ‘get’ Findependence. In the next few days, we’ll have more Decumulation pieces by others on that list.

Stay tuned!


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