Decumulation and the Safe Withdrawal Rate, SWR, in Retirement
The Safe Withdrawal Rate, SWR
What I have noticed over the past decade is a common client question: “What is the Safe Withdrawal Rate” i.e. how much money can I safely withdraw from my portfolio during retirement such that I don’t run out of money in my lifetime? This article focuses on decumulation of your retirement assets meaning the drawing down and spending of assets while also addressing the “Safe Withdrawal Rate”, SWR. Decumulation is a relatively new term but basically it’s the opposite of the accumulation or the saving process that many are familiar with as they build up retirement assets.
Guaranteed versus Variable Income Sources
- Examples of guaranteed income sources are Canada Pension Plan (CPP), Old Age Security (OAS) and company pension plans or annuities.
- Examples of variable income sources would be a Registered Retirement Savings Plan (RRSP) once you decide to convert to a Registered Retirement Income Fund (RRIF) and begin periodic withdrawals. The important distinction is that this income source is variable in that not only are there annual minimum withdrawal requirements but if you are invested in a portfolio of securities. The portfolio will also fluctuate depending upon how the markets perform (your investment return) and how you have invested the portfolio (aka your asset allocation). Please note that a RRIF becomes a guaranteed income source, if you choose to convert it to an annuity (more about annuities can be found by clicking here).
Where To Start
Fewer Company Pension Plans Now
Things to Ponder
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