1. Understand the Danger of Sequence of Returns Risk
Sequence of returns risk is when the stock market drops right when you start taking money out in retirement. Even if your average return is okay over 20 years, bad returns in the first few years can ruin your retirement plan.
Why it matters now:
- If you lose 20% of your portfolio and still need to take out money to live, you’re selling investments at a loss.
- This makes it harder to recover and could cause you to run out of money early.
How to protect yourself:
- Build a “cash bucket” with 3– years of expenses in safe, liquid investments (like GICs or high-interest savings).
- Consider reducing equity exposure slightly as retirement approaches.
- Work with a financial planner to design a withdrawal strategy that protects you in down markets.
2. Run a Retirement Stress Test
Test your plan against different market scenarios:
- What if inflation stays high?
- What if the market crashes early in retirement?
- What if you live to age 95?
This helps you prepare for the worst while hoping for the best.
3. Don’t Stop Saving — Sprint to the Finish Line
This is your last, best chance to boost your retirement savings. Use RRSP and TFSA catch-up contributions, and maximize any employer pension or group RRSP plans if it makes financial sense.
4. Shrink Debt Before You Retire
Carrying debt into retirement adds risk. Try to eliminate:
- Credit cards and lines of credit
- Personal loans
- Your mortgage (if possible)
The fewer monthly payments you have, the more control you’ll have over your cash flow.
5. Create a Smart Withdrawal Plan
Work with a retirement income expert to decide:
- When to take CPP and OAS
- Which accounts to draw from first (RRSP vs TFSA vs non-registered)
- How to minimize taxes
The order you withdraw funds can save (or cost) you thousands over time.
6. Know What You’ll Do With Your Time
Retirement isn’t just a financial change — it’s a lifestyle shift. Start thinking now:
- What will your days look like?
- What gives your life meaning?
- Will you volunteer, travel, consult, or start a business?
Your plan should include both numbers and purpose.
Final Thoughts
Surviving the last 5 years before retirement means more than saving — it means protecting. Especially from risks like market downturns at the wrong time.
By understanding sequence of returns risk and having a plan to manage it, you can retire with confidence.
