Key takeaways:
- Before you retire, consider how much income you’ll need to support the retirement lifestyle you want, and review your current financial portfolio to see if you’ll be ready.
- Make a retirement income withdrawal plan today in order to be able to position your investments and accounts for maximum potential earnings and tax savings before you start drawing from them.
- Establish your retirement wealth disbursement plan, naming beneficiaries and successors to your investments and registered accounts, so when the time comes you can seamlessly transfer your funds and the stewardship of those funds to your heirs.
Picture this: you’re done working. You’ve retired. How are you spending your time? Travelling? Exploring new hobbies? Spending time with loved ones? Whatever your dream retirement looks like, it’s important to know whether or not you’re financially ready.
As you enter the final stretch of your peak earning and saving years, it’s an essential time to make a pre-retirement wealth preservation plan. To help you get started, here are three key questions to ask yourself to make sure you’re ready to make the leap from growing your wealth to drawing on it for retirement.
1. Do I have enough saved for retirement?
One of the first steps in making your pre-retirement wealth preservation plan is to review how financially prepared you are for retirement. Common guidance suggests that as a benchmark you should plan on drawing 60-70% of your current income level annually during your retirement years, but that may not fully take into account how you want to spend your retirement, especially if it’s significantly different than your current lifestyle. For example, if you plan to travel more, you may need to have more saved. Once you know what your retirement will cost you, you can then determine if you’ll be ready to retire when you’d like to.
To figure out if you’ll have enough retirement income, you can review your current portfolio and project how much it will be worth when you plan to retire. Regardless if you’re on track to having enough or if you need to engage in a pre-retirement savings sprint, reviewing your asset allocation and portfolio diversification at this stage in your wealth accumulation may help provide you with the insight you need to make any adjustments now for your future. Specifically, consider taking a look at how you’ve leveraged private alternative investments into your overall retirement wealth strategy. By incorporating products like real estate investment trusts (REITs) and renewable energy infrastructure funds, you can help supplement a portfolio positioned to maximize potential earnings with investments anchored in real assets. And when those private alternatives have historically stable returns and have weathered previous market uncertainties, like Skyline REITs and Skyline Clean Energy Fund, you’ll have the chance to capitalize on the full earning potential of private alternative investments now and into your retirement years.
2. What retirement income strategy will I leverage?
It’s estimated that Canadians should aim for a retirement that could last 40 years or more, according to the latest Manulife Financial Resilience and Longevity Report, a reality that they’re finding many Canadians are unprepared for. Knowing how to invest for retirement in Canada is only the first step. You also need to know how to strategically draw on your retirement wealth to make it last for the entirety of your retirement, while also ensuring that the wealth you’ve built can be passed along as part of your legacy.
A strong retirement income strategy starts with identifying and coordinating your sources of income. Your retirement income streams will probably include a blend of returns from registered accounts, like minimum required withdrawals from your Registered Retirement Income Funds (RRIFs) and Life Income Funds (LIFs), non-registered accounts that provide regular dividends or distributions, and government benefits, like Old Age Security (OAS). You may want to strategize when, how much, and what kind of withdrawals you’ll make, taking into consideration your marginal tax rate, government benefits, and the requirements of your registered accounts that may be affected. Working out a strategy now based on your current portfolio can give you a feel for what your cash flow might look like in retirement.
Whatever your retirement income strategy, it’s important to use all the tools available to you to not only maximize your cash flow, but also leverage tax efficiencies, helping you keep more money in your pocket while continuing to grow your investments. For example, private alternative investments, like Skyline REITs, may pay out a portion of their distributions as Return of Capital (RoC), which is essentially a portion of your original investment, and, therefore, doesn’t immediately trigger taxation. This means the amount you receive won’t initially increase your overall income received or affect other retirement income streams, such as OAS. RoC will, however, reduce your Adjusted Cost Base (ACB), which may then affect your overall capital gains and taxation, so you may want to create a strategy for receiving RoC distributions as well.
Beyond the tax benefits, savvy investors protect retirement income by ensuring asset allocation in retirement portfolios is strategized, as the overall investment mix may play a critical role in maintaining financial stability. Market volatility can be a real risk in retirement, when you’re withdrawing rather than contributing, which is why some retirees include assets that provide more predictable cash flow alongside public market investments. Certain carefully selected private alternatives can fit this purpose, offering stable, consistent distributions that support long-term income needs without day-to-day volatility.
3. How should I disburse my wealth when the time comes?
It’s never too early to consider your estate planning. And you’re not alone in this planning: by the end of 2026, over $1 trillion is expected to have been passed on from one generation to the next in what’s being referred to as a Canadian wealth tsunami. Being caught unprepared when it comes time to transfer your wealth could not only potentially cause unnecessary emotional and mental stress on you and your family, but could also lead to significant financial impacts if you don’t have a succession plan for your investments. Making a plan today can relieve some of that pressure and may help ensure a smooth transfer of wealth when the time comes, so talk to a qualified professional to get started. Additionally, while your circumstances may change from now until retirement, including your health, family makeup, or overall financial situation, having a plan today means you’re prepared rather than reacting when it really counts.
One thing you can do right now to prepare is determine and assign beneficiaries to your investments, including any private alternative investments in your portfolio. Without a beneficiary, your investments may be caught in a costly and time-consuming court-supervised probate process and will have to be liquidated. This will also mean that your heirs will be taxed for any money received from those sales, which could significantly impact the overall value of your investments and assets and pressure your beneficiaries into making financial decisions sooner than they should need to. Further, if you name your beneficiaries today, you can have conversations with those heirs to ensure they understand your current investment strategy and how they can maintain that trajectory and plan after they take stewardship of your wealth. For example, if you are invested in a Skyline REIT, you can discuss with your beneficiaries if you have enrolled in a Distribution Reinvestment Plan (DRIP), whereby any earnings are automatically reinvested, and explain how the investment has been set up for maximum potential earnings by combining the historically stable returns of the REIT with the power of compounding.
Finally, it’s key to name a successor to your registered accounts. By doing so, the account, along with all of the investments stocked in that account, will seamlessly transfer to your successor, generally a spouse or common-law partner, without incurring any immediate taxation or probate fees. It will also make sure that your heirs won’t have to prematurely withdraw the funds before they can achieve further tax-sheltered earnings. You should note, though, that to avoid any hiccups, make sure the successor named to your accounts is the same named in your will. If there’s any discrepancy between the two, it may lead to a protracted legal process that prevents your beneficiary from having access to the funds.
And remember: as your retirement nears, keep reviewing your current estate plan to ensure it’s up to date, so you and your loved ones are ready to tackle whatever the future holds, together.
Next steps
Your pre-retirement years are all about making those last final strategic savings and earnings moves for maximum retirement wealth building so you can enjoy the fruits of your working years and pass along the maximum potential amount of wealth to your beneficiaries. Here are some steps you can take today to prepare for your tomorrow:
- Review your current portfolio with a qualified professional and project how much it may be worth when you hope to retire. With that information, you may have a better understanding of what you need to achieve in order to reach your retirement wealth
- Make a plan for how you’ll withdraw your retirement income, taking into consideration your current blend of investments and account types and strategizing for maximum earnings and tax-savings potential to help prevent any unnecessary stress or financial impacts if you have to unexpectedly change your retirement timeline.
- Establish a disbursement plan for your retirement wealth with your legal team, discussing the plan with your beneficiaries. A will and naming successors of your investments and accounts, both registered and non-registered, may help smooth the wealth transfer. For example, if you have investments with Skyline, take the time to review the beneficiaries named in your will and on your registered accounts, so when the time comes, your loved ones are prepared and your wealth may be preserved.
Incorporating private alternative investments, like Skyline’s suite of investment products—Skyline Apartment REIT, Skyline Industrial REIT, Skyline Retail REIT, and Skyline Clean Energy Fund—can help you realize the retirement you’ve been building toward your entire earning life. By diversifying today with Skyline products, you’re positioning your current portfolio for maximum earning potential, and taking advantage of investments with historically consistent returns and built-in potential tax efficiencies. Because that dream you have for your retirement? It starts here.