In­vest­ing for in­come – five fun­da­men­tals


Asound fi­nan­cial plan usu­ally in­cludes de­vel­op­ing and main­tain­ing a port­fo­lio of in­vest­ments that you will, at some point, tap into on a reg­u­lar ba­sis to cover liv­ing ex­penses or for some other on­go­ing need. That is most likely to oc­cur after you re­tire but, de­pend­ing on your unique fi­nan­cial needs, it could come ear­lier – so here are five fun­da­men­tals for get­ting the most from your in­vest­ments.

1. Be re­al­is­tic about whether or not your cur­rent in­vest­ments will de­liver an ad­e­quate level of in­come In re­tire­ment, your in­come will usu­ally con­sist of amounts you’ll re­ceive from the Canada Pen­sion Plan, Old Age Se­cu­rity (CPP/OAS), pri­vate pen­sion plan(s) and per­haps work in­come, plus draws from your in­vest­ments. If you think your re­tire­ment ex­penses will be such that the in­come pro­duced from your in­vest­ments will be in­ad­e­quate, you should re­visit your port­fo­lio and sav­ings strate­gies now.

2. Ver­ify that your in­come will last as long as you need it The level of in­come you draw from your in­vest­ments should not com­pletely de­plete your sav­ings while you still need them. The in­vest­ments you choose will de­pend on your in­vest­ment style and in­come needs.

3. As your ex­penses in­crease with in­fla­tion, your in­come needs will also change A port­fo­lio that con­sists solely of fixed in­come in­vest­ments, such as GICs, is un­likely to pro­duce longterm growth above in­fla­tion. Growth in in­come comes from growth in as­sets. That’s why in­vest­ing for in­come dur­ing a long re­tire­ment usu­ally means in­clud­ing in­vest­ments in di­ver­si­fied eq­uity mar­kets, de­pend­ing on your com­fort level with mar­ket risk.

4. As­sess your need for in­come sta­bil­ity and how to achieve it Be mind­ful of the im­pact that con­stant with­drawals can have on your in­vest­ments. If you need a high level of in­come sta­bil­ity, look at in­vest­ments that de­liver reg­u­lar distri­bu­tions – fixed in­come, real prop­erty, div­i­dend pay­ing se­cu­ri­ties – or prod­ucts that pro­vide a guar­an­teed monthly in­come, such as an­nu­ities.

5. Con­sider the tax im­pact on the in­come you draw In­come from in­vest­ments held within a TFSA are taxfree, while in­come from your other regis­tered as­sets is fully tax­able. For your other ac­counts, the tax on in­ter­est is gen­er­ally higher than in­come from div­i­dends or cap­i­tal gains. The amount of your tax­able re­tire­ment in­come may also trig­ger claw­backs of your OAS ben­e­fits. Look at in­vest­ment struc­tures that can pro­vide more tax-ad­van­taged in­come for non-regis­tered ac­counts.

Plan­ning to en­sure you re­tire­ment in­come needs will be met can be com­plex. Your pro­fes­sional ad­vi­sor can sup­ply the ex­per­tise and vi­sion you need to meet those needs.

This col­umn, writ­ten and pub­lished by In­vestors Group Fi­nan­cial Ser­vices Inc. (in Québec – a Fi­nan­cial Ser­vices Firm), and In­vestors Group Se­cu­ri­ties Inc. (in Québec a firm in Fi­nan­cial Plan­ning) presents gen­eral in­for­ma­tion only and is not a so­lic­i­ta­tion to buy or sell any in­vest­ments. Con­tact your own ad­vi­sor for spe­cific ad­vice about your cir­cum­stances. For more in­for­ma­tion on this topic please con­tact your In­vestors Group Con­sul­tant.

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