Retirement planning often comes down to making critical decisions about investment vehicles and allocation strategies. For many Canadian retirees approaching their golden years, the choice between Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) becomes increasingly important.
As investors reach age 61, they face a pivotal question: should they maintain their traditional bond-heavy portfolios or pivot toward equities? The conventional wisdom has long suggested that as one ages, the portfolio should become more conservative. However, modern longevity statistics challenge this assumption.
Consider the math: at 61, many Canadians may have 25+ years of retirement ahead. With inflation eroding purchasing power, growth assets remain essential. The Bank of Canada’s inflation calculator demonstrates how even modest inflation can significantly impact retirement funds over decades.
TFSAs offer remarkable flexibility for retirees. Withdrawals don’t trigger clawbacks of income-tested benefits like Old Age Security (OAS), making them ideal vessels for higher-growth investments. Meanwhile, RRSPs eventually convert to Registered Retirement Income Funds (RRIFs), where minimum withdrawals become mandatory at 71.
Strategic allocation is key. Retirees might consider positioning growth-oriented investments in TFSAs while maintaining income-generating assets in RRSPs/RRIFs. This approach can optimize tax efficiency while balancing the portfolio for longevity protection.
The Canada Revenue Agency provides detailed guidance on contribution limits and withdrawal rules that should inform any reallocation strategy.
Every retirement situation is unique. Factors including pension income, expected inheritance, health considerations, and estate planning goals should all influence your asset allocation decisions. While shifting some bonds to stocks at 61 might make mathematical sense for many, personal risk tolerance remains paramount in these decisions.
