How will you spend your retirement time?

Retirees have told me they rarely miss the money. What they do miss is the day-to-day structure, orientation and socialization.

Retirement for most isn’t one long golf game. You really need to know yourself and focus on the lifestyle you hope to enjoy, and the real costs associated with it.

Statistics suggest the first two years are make-it-or-break-it: You either love retirement or hate it, and quite often this is the period of time you spend the most money, splurging a little as you explore new activities.

You have stopped working, but that doesn’t mean the pay doesn’t continue. The question becomes, is it enough money to ensure you don’t outlive your retirement?

1) What can you afford?

Take the time to figure out how much you can afford to pay yourself versus how much you want to pay yourself. You will have fixed costs that need to be covered and you will have discretionary costs that will enhance your lifestyle.

You need to create a retirement income stream likely from multiple sources, each often with its own tax consequences.

2) Do I have a tax strategy?

While taxes aren’t the only consideration, they should be a top priority. Developing a strategy requires you to consider where your money is coming from – the government, a workplace pension, personal retirement savings (RRSP) or even tax-free savings accounts.

The taxation of each source is different. Pension income as well as RRSPs, RRIFs and life income funds are fully taxable. The good news, these plans can be split with a spouse in order to reduce taxation once both parties reach the age of 65.

3) What other investments can I draw from?

Other investments used to fund retirement will be stocks, which typically are held outside of registered plans to take advantage of the 50 per cent capital gains exemption or qualifying dividend income investments.

The tax-free savings account is growing in importance when it comes to retirement planning. Withdrawals are not subject to taxation and are a great place to hold anything that does not have preferential treatment, such as interest-bearing income. But you still might want some capital appreciation through stocks as well.

In general, guaranteed income streams should be used to cover off fixed costs while lifestyle savings can be driven by portfolio performance.

Given that retirement can represent a third of your life, delaying paying taxes is a good thing, but not the only thing.

Estate planning and tax consequences will one day come into play but should not drive your lifestyle choice today. You get to enjoy your money and, yes, taxes will have to be paid. The government will be paid, you just want to minimize the payment to the extent you can, while enjoying life.

Don’t be afraid to draw down your registered savings.

You will have to pay the government one day, ultimately, and while you’re here you can be strategic about it drawing as appropriate. Once you are gone, if there is no surviving spouse, the tax man will come calling and costs could amount to half of the estate.