Finance 5. Withdrawal rate: calculate and review regularly The vast majority of snowbirds rely on their investment portfolios (an RRSP or RRIF, a TFSA and non-registered accounts) to generate income for at least a portion of their everyday living expenses. What exactly is an appropriate withdrawal rate from those accounts? How much can you regularly withdraw from your investment portfolio without depleting your long-term savings? Answering that question is a critical financial priority. In days of old, most financial professionals would rely on the so-called “5% rule” to determine an appropriate withdrawal rate: retirees could reasonably withdraw up to 5% of their retirement capital without worrying too much about outliving their money. In 1994, U.S.-based financial advisor William Bengen did some very important back-testing analysis which determined that 4% was a much safer target. Some very recent analysis from investment research group Morningstar has determined that 4% might be too conservative. Given the recent run-up in government bond yields, retirees should be able to withdraw a little more and still not run out of money. The problem with all of these rules is that they’re based on an entire host of assumptions: an average life expectancy; reasonable spending habits; investment in a reasonably conservative portfolio; a reasonable level of inflation; an average amount of stock market volatility; historically average bond yields, and so on. Needless to say, all of these things require a good deal of guesswork. Given the inherent uncertainty of the future, it’s probably safer to think of the 4% rule as a starting point for a more detailed withdrawal rate calculation. But you won’t know until you sit down and crunch the numbers for yourself. Determine how much income you’re required to withdraw from your RRSP/RRIF Calculate a 4% base withdrawal rate from your investment accounts Use an online calculator to perform an analysis of whether that withdrawal rate is feasible over the long term, and adjust your withdrawal rate accordingly CSANews | WINTER 2023 | 31
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