Are some financial planners missing important elements for clients' retirement plans?
Is one the most commonly-held beliefs about maximising retirement income, misplaced?
Financial planners often recommend withdrawing a higher level of RRIF assets, up to the threshold of a client's current tax bracket – and before the required age of 72 - as a key strategy to help maximise retirement income in the most tax-efficient way.
But that, says FP Canada, oversimplifies what is a complex set of circumstances and may not be in the client’s best interest.
Doug Chandler, an actuary specializing in retirement research and an Associate Fellow of the National Institute on Ageing, recently carried out research into assessing the value of withdrawing more from RRIFs than required and earlier.
Funded by the FP Canada Research Foundation, the study revealed that using a ‘rule of thumb’ approach to withdrawals that are based on just one future scenario are unreliable and misleading.
A recent CD Howe Institute report called for reform for RRIF rules.
Important factors
RRIF strategies should include a client’s potential lifespan and how their investment returns may pan out, Chandler said. He noted that, for example, if returns are weaker than expected, the perceived advantages of withdrawing more earlier can be erased.
"When helping a client determine when and how to withdraw from a RRIF, there are complexities involved, and many unknowns," said Doug Chandler. "This research demonstrates the importance of seeing the bigger picture. That means accounting for things like current and future tax rates, income-splitting opportunities, investment risks and returns, and more."
The research concludes that financial planners should use their professional judgment to tailor solutions to individual client’s circumstances and avoid relying on ‘one-size fits all’ strategies.
The full report is available on the FP Canada Research Foundation website.
