How to Decumulate Assets in Retirement


Most of the wealth management industry is biased to asset accumulation, for many obvious reasons, but at some point, as an aspiring semi-retiree or a retiree, you’ll need to consider how to decumulate assets in retirement.

Today’s post will tackle some of our thoughts on that, our current approaches, along with what we’ve learned from the experiences of our valued readers and clients to share some pearls of wisdom that can be customized to your cashflow and portfolio too.

Beyond portfolio changes – how to decumulate assets in retirement

Investors working towards retirement arguably face more challenges and headwinds than before.

For starters, there has been a slow decline and loss of workplace pension plans with the rise of defined contribution plans, if the latter is even provided to you! This essentially shifts the investment risk and burden from employers to employees and makes some retirement planning activities for any individual investor riskier and more complex.

Secondly, there is longevity risk. For the most part, this is good news. I mean, Canadians are living longer on average. However, a longer life also means more expenses, more healthcare costs and therefore the risk of running out of money in your 80s and 90s is potentially a legitimate concern for many. Retirements and income needed for retirement and aging could stretch for multiple decades.

Third, it certainly seems markets are becoming more volatile over time but that may or may not be happening in practice. What is true, however, is all investors have experienced a few major, significant market swings over the last two decades – including The Great Recession and the most recent pandemic crisis. When you add in higher inflation of late, which will erode your purchasing power, well, you have a stormy set of conditions to navigate.

Related Reading:

Could you retire if the Global Financial Crisis happened again?

A reminder that stock market volatility is part of the investor experience. But, this is also true:

“the longer an investor holds their collection of stocks, the greater the potential for an overall positive return could be.” – Cashflows & Portfolios.

Beyond these investing headwinds, we’ve also come to realize based on our own current experiences and those we observe and discuss with our clients, that investors often experience a massive psychological shift/change in perspective when they retire.

(Asset) accumulation describes a phase of an investor’s lifecycle that is focused on saving and investing – to build wealth for retirement. The earlier an investor starts this journey, the more they save, well, the greater their chances of retirement success will be.

As Warren Buffett once said:

“Someone’s sitting in the shade today because someone planted a tree a long time ago.”

Asset decumulation typically starts at the point when people retire or semi-retire, and they begin drawing from their saved assets and/or investments in some fashion. Depending on their own financial situation (and believe us – everyone is different – after supporting over 200 clients to date at Cashflows & Portfolios), this period may also involve lifestyle changes as well.

Those lifestyle changes could be one of three key scenarios:

Scenario 1 – You Decide to Scale Back

Many people see themselves living more simply and spending less money in retirement. In some cases, a smaller nest egg can work well. But living comfortably on less money takes more planning. And your expenses might not drop as much as you think. It depends…

Given housing is likely your biggest expense, reducing housing costs can have a big (positive) impact on your retirement budget. Relocating to a less expensive area or downsizing could help reduce your housing costs even further, although not always since inflation and taxes might go up in your new area too. With transportation costs usually the second largest expense for many households, the combination of downsizing and limiting transportation expenses can go a long way to reducing overall retirement expenses.

Scenario 2 – You Decide to Change Things Up

Depending on your “whys” in retiring to something, maybe you want to try something new in retirement, like going back to school or pursuing a passion project. The choice is yours, of course.

If your plan is to further your education, you’ll want to account for those costs and time. If you want to start a new hobby or small business, you could incur some additional startup costs as well.

At Cashflows & Portfolios, we see many retirees choosing some work in retirement, albeit this is just for some folks, up to a year or so as they transition to full-on retirement. Doing so gives them time to adjust to a new lifestyle and new experiences. We also see some retirees volunteer more. There is always purposeto be had in retirement too!

Scenario 3 – You Decide to Live Larger

Some retirees not only seek to take a complete break from work, but they also want to do all the things they’ve put off for the last few decades while working and some of them raising a family. Travel is a big expense as part of living larger and must be accounted for.

Beyond the portfolio changes – how to decumulate assets in retirement

The key to any scenario and any plan is the process of planning.

We would suggest getting as specific as possible with some of the following:

  • How much do you see your lifestyle changing?
  • How much is that lifestyle going to cost, each year, on average?
  • What extra expenses might occur, given any lifestyle changes or goals?

The sooner you know your answers, and what you are retiring to, the better you can define your asset decumulation approach.

How to decumulate assets in retirement

Here are some comment approaches we see clients taking, and why.

At Cashflows & Portfolios, we’re also planning these same very things.

Decumulation Tactic #1 – Withdraw RRSPs/RRIFs assets sooner than later.

Your RRSP reaches “maturity” on the last day of the calendar year you turn 71. If you wait until this point, you can access your RRSP assets through 3 maturity options.

Maturity Option #1: Make a Lump Sum RRSP Withdrawal – you can choose to withdraw all the funds in your RRSP as a lump sum, but the withdrawn amount will be subject to withholding tax. The withholding tax gets taken out of your withdrawal immediately and paid to the government. Additionally, this amount must be added to your income when filing your taxes.

Maturity Option #2: Convert RRSP to RRIF – you can choose to convert your RRSP to a RRIF (Registered Retirement Income Fund). A RRIF gives you a steady flow of retirement income, with a minimum amount that must be withdrawn each year. This is the most popular choice with many clients if they wait until age 71 in the first place.

When converting from your RRSP to a RRIF, it’s important to keep this in mind:

Annual withdrawals and withdrawal rate: You must make annual minimum withdrawals from your RRIF. These minimum withdrawals must be included in your taxable income each year but are not subject to withholding tax at the time of the withdrawal. Any amount withdrawn over the minimum amount will be subject to withholding tax. Beyond RRIF minimums, your returns inside the RRIF may or may not exceed your RRIF withdrawal rate in which case, longevity risk could apply if you do not manage this account well – RRIF assets are depleted earlier than you expect.

Maturity Option #3: Purchase an Annuity – you can convert your RRSP to an annuity which offers a guaranteed income for life or for a specified period. Withholding tax is not applied on amounts that are used to purchase an annuity. You may have to pay tax on the income when you start receiving your annuity payments.

While conventional wisdom might be to keep RRSP/RRIF assets intact until the year you turn age 71, most retirees at least consider withdrawing from their RRSP/RRIF before this maturity date, to use income they want/need for retirement and to smooth out taxation when other income streams like government benefits come online.

We won’t repeat all the good reasons to consider this, so check out this post for more information.

What is a RRIF? How does a RRIF really work?

The summary is most retirees or semi-retirees, at least consider from their financial projections reports or from their financial plan to start withdrawing money from their RRSP/RRIF before age 71.

Decumulation Tactic #2 – Delay CPP and OAS, where possible.

By now, most retirees know they can boost CPP benefits by 42% by delaying the onset of benefits from age 65 to 70, or 0.7% for each month of deferral after 65.

It’s less known that a similar mechanism works for OAS.

Unlike CPP, which can start as early as age 60, OAS is not available before age 65. By delaying OAS by five years to the age of 70, you can boost final payments by 36%, or 0.6% more for each month you delay after 65.

So, sure, if you can easily afford to defer both benefits – go for it.

However, many retirees can’t afford to do that, nor do they want to do that. Where possible, you can consider deferring CPP to age 70 but consider taking OAS at age the tradition age of 65  – since worse case if you don’t need the money – you can always take the OAS benefit and max out your Tax-Free Savings Account (TFSA) contribution room with your benefit received.

Growing your personal TFSA assets can be smart for longevity risk and/or estate planning.

This way, by delaying government benefits you have the option to withdraw RRSP/RRIF assets more strategically amongst the timing of other income streams as well – those could include non-registered accounts, taking a workplace pension, or earning any side-income or hobby income in the early years of retirement.

Decumulation Tactic #3 – Establish your Cash Wedge to navigate withdrawals.

Opinions will vary when investors should somewhat retreat from the vicissitudes of the stock market and pull their assets into less risky, income-producing investments but with longevity risk, inflation risks and volatility risks to battle for every investor – we believe there is a way to combat all of this and so do our clients.

Establish a cash wedge.

We’re written about this approach before, how to manage and potentially thrive after a series of poor investment returns.

We’ll refresh that post over time as our clients offer their own takes and experiences too!

My Own Advisor is planning to put the finishing touches on his savings for his cash wedge in the coming year.

He has a free, downloadable cheat sheet on what the cash wedge is – in this post here.

The Cash Wedge – Managing market volatility

Retirees that have employed their own type of cash wedge continue to tell us they sleep better at night knowing regardless if they favour dividends or creating their own dividends via selling assets, the stock market could essentially shut down for a year or so and they wouldn’t worry about any equity returns.

The goal of any cash wedge approach helps allocate a portion of your retirement portfolio, in readily available cash, to meet your near-term income needs/spending needs, while still keeping your diversified portfolio intact to take advantage of market opportunities or market increases for long-term growth.

Summary – How to Decumulate Assets in Retirement

By no means have we covered everything in today’s post, but we can share with a great deal of confidence that all early retirees, semi-retirees, and fully retired DIY investors have certainly considered one or more of the following as part of their financial projections with us:

  1. The strategic timing of RRSP/RRIF withdrawals before age 71.
  2. Delaying at least CPP and potentially OAS, and reviewing the taxation impacts that might bring or not.
  3. Establishing a personalized cash wedge to navigate any sequence of returns risk.

As we learn from our clients and do our own personalized projections work in the same software we provide to DIY investors, we will update this post and keep it current should any new trends emerge.

Need help with understanding your cashflow or your portfolio for income planning?

We can help!

We answer client questions like:

  • What accounts could I draw down first, how much?
  • How much income will my investments generate?
  • Can I afford a large purchase like a new car or new house during retirement?
  • Do I have any idea how long this income might last?
  • What amount of taxes will my RRSP withdrawals incur?
  • When should I take my workplace pension?
  • And much, much more…

Nobody knows what the future holds with any sort of accuracy, so don’t let any experts convince you otherwise. At Cashflows & Portfolios, this is why we believe in the process of planning and replanning with financial projections.

If you need help solving your retirement decumulation puzzle (i.e., how to efficiently withdraw from your retirement accounts), or figuring out if you have enough saved to spend for your retirement income plans, we’re here to help answer those questions and more as well!

In fact, we now offer two great, low-cost solutions!

As always, you can consider our low-cost Done-For-Your Projections Services here.

And…just launched recently, you can consider our even lower-cost DIY Projections Solution here.

We continue to help many clients every single month and our passion is to continue doing this in a low-cost model for DIY investors by DIY investors.

Ask us any questions about our content, processes and services, anytime.

Thanks again for your readership and see you in our comments section!

Mark and Joe.

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4 thoughts on “How to Decumulate Assets in Retirement”

  1. Unless one has a minuscule RRSP or is already in a very high tax bracket, Tactic 1 option 1 will cost a lot more in taxes than option 2 (converting an RRSP to a RRIF (at any age) and making withdrawals over multiple years). Also, if married, RRSP withdrawals are not eligible for income splitting, whereas RRIF withdrawals are.

    • Thanks, PaulM. We don’t mind lump sum RRSP withdrawals since they don’t need to be high $$ amounts given other assets some DIY investors might own but we do appreciate the point.

      Once our members/clients get their reports back, many realize there are different levers they can pull to meet their income needs but almost everyone seems to understand these merits:

      1. The strategic timing of RRSP/RRIF withdrawals before age 71.
      2. Delaying at least CPP and potentially OAS, and reviewing the taxation impacts that might bring or not.
      3. Establishing a personalized cash wedge to navigate any sequence of returns risk. Some DIY investors have up to 3-years’ worth in cash/cash equivalents, GICs, fixed income which is impressive. :)


  2. My comment was directed at the sentence that said “… can choose to withdraw all the funds in your RRSP as a lump sum”. Unless one has very little in their RRSP, taking all the funds in one lump sum will likely put one in the highest tax bracket for their entire RRSP.

    • Ah, gotcha! :)

      We agree and generally see that with clients…if you are going to take lump-sum RRSP withdrawals, you need to be strategic (i.e., avoid taking too much at any one time, over many investing years, in our opinion).



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