How Should I Manage My Savings in Retirement?
Your retirement income will likely come from three sources: government programs, personal savings, and your employer’s retirement plan. The government programs consist of the Canada Pension Plan and Old Age Security. The assets you have accumulated under an employer retirement plan can be used to purchase an annuity, set up a managed income strategy or some combination of both.
With a managed income strategy, retirement plan assets are transferred into either a Life Income Fund (LIF) for registered pension plan assets or a Registered Retirement Income Fund (RRIF) for Group Retirement Savings Plan (GRSP) assets. Both a LIF and RRIF are like a retirement savings plan, but in reverse. You decide how your assets are invested and instead of making contributions you must make withdrawals (according to government rules) that will provide you with taxable income.
You may choose a LIF or RRIF for a number of reasons. You may wish to continue growing your assets during retirement (through investment gains), require flexibility in how much cash you withdraw, or you may not be concerned about outliving your retirement assets.
Your choice may also depend on your investment objective (i.e. safety of principal, income or growth of capital). With a LIF or RRIF you assume the investment risk, which means the value of your assets may go up or down and may affect the amount of income you receive. If your investment objective is safety of principal or income, you may invest more conservatively to minimize risk.
Another consideration is ‘how much time do you want to spend managing your retirement investments?’ If you enjoy managing your investments, converting all or a portion of your assets to a LIF or RRIF may make sense. In this instance you may wish to work with a professional investment advisor. On the other hand, if you do not want to worry about managing your investments, it may be easier for you to sleep at night if you purchase an annuity that gives you a guaranteed income.
The choice to pursue a LIF or RRIF strategy at retirement will be unique for each individual. It is recommended that you consult with a financial planner, before retirement, to review your situation and the options available.