Decumulation, it’s yours to lose

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For most retirees or those soon to retire, the term “decumulation” is something that should become first and foremost in one’s mind.  It has been ignored and yet represents one of the key building blocks of one’s retirement nest egg.

At last count (Stats Cda 2015), 1,128,000 Canadians are members of Defined Contribution Plans in the private sector. This represents over 87% of all members currently covered by this type of plan.

Each year this pool of Canadians is asked to take a percentage of their salary, along with a company contribution, choose an investment option that is often managed via an insurance company without any professional guidance/intervention, accumulate retirement savings during their active career.  When you retire, quit or terminate, your employer will notify the pension plan and let them know you are no longer employed.  At that point, the pension plan will send you an options package outlining your options. In today’s world and in the overwhelming majority of cases, you the soon to be retiree is on the hook to decide what to do. Gone are the days of a staffed Human Resources department with ample advice at one’s fingertips.

The question begs, as you pack up and venture off into what will be life’s greatest reward, are you prepared to make this critical decision within a 90-day time period? How does this sudden windfall of retirement funds that you have only looked at once a year now integrate into the rest of your savings? Are you aware of the costs of doing nothing? Did you know that doing nothing means your funds usually get added into a larger pool of funds with everyone else at the same insurance carrier? Are you aware that the costs are often expensive? Isn’t this the time you should be seeking advice?

Ontario’s fall economic statement confirmed the government is exploring new approaches to help retirees draw down their savings in an efficient, cost-effective manner so their savings last throughout retirement. The suggested plan is for the implementation of Pooled Registered Pension Plans (PRPP). However, it is well known that the provinces vary in both approach and enthusiasm for implementation. Will anyone also want to participate in a government administered plan given the press surrounding the recent payroll system issues?

Our suggestion is not to wait and ensure your hard earned and accumulated retirement savings are addressed before your target date arrives. These monies are a fundamental means of maintaining your standard of living in retirement. Don’t lose out.