Planning for the compensation cliff: How to transition from high earnings to retirement income with confidence

For many Canadians, the move from career to retirement is one of the biggest financial transitions of their lives. During your working years, your income is often steady, predictable, and depending on your role, may be supported by a mix of bonuses, stock programs, pensions, and savings plans. But once you step out of your role, that structure changes. Your compensation may drop quickly, and your income will come from new places: your savings, your investments, and the planning you’ve done over the years.

This shift is sometimes called a “compensation cliff.” While the term sounds dramatic, the reality doesn’t have to be. With the right planning, you can move into retirement with clarity, confidence, and a strong understanding of how your wealth supports the life you want.

We help you make this transition thoughtfully, by bringing together cash flow, taxation, savings, and lifestyle planning into one clear roadmap. Here’s what that looks like.

Why the compensation cliff matters, and what it really means

Your income might include:

• Base salary
• Annual and long-term bonuses
• Stock options, restricted stock units (RSUs), performance share units (PSUs), or deferred share units (DSUs)
• Supplemental pension or retirement plans
• Deferred compensation
• Corporate savings programs
   

These programs are powerful wealth-building tools, but they also create a challenge: once you retire, many of these income sources end or change.

The key question becomes:

How do I replace my working income with retirement income, and will it support my lifestyle for decades to come?

Answering this isn’t about fear. It’s about understanding the numbers, the timing, and the choices ahead of you.

Making this shift begins with understanding what changes when your career ends, and how to prepare for it long before you reach that point. While everyone’s situation is unique, the transition becomes much clearer when you break it down into a few key areas.

1. Understanding what your income will look like after your career

In retirement, your income may come from:

• Registered accounts (RRSPs)
• Non-registered investments
• Corporate assets (if you’re incorporated)
• Pensions or supplemental pension programs
• Deferred compensation that begins paying out after retirement
• TFSAs
• In some cases, proceeds from a business sale
   

Each of these sources has different tax rules, withdrawal timelines, and levels of flexibility. The first step is understanding how they work together – and when each one should be used.

A well-built plan shows:

• How much income you can draw each year
• The most tax-efficient order to draw it
• How your portfolio should be structured
• What your income will look like in 5, 10, and 25 years
• How long your assets will last under different scenarios, such as market volatility, illness, supporting family, or making large purchases
   

This clarity replaces uncertainty with informed decision-making.

2. Aligning your lifestyle with long-term planning

When you’re busy working, it’s common to have limited personal time. That’s why, when retirement arrives, your lifestyle may actually expand: more travel, more family time, more experiences. Your spending often shifts, not down, but differently.

Lifestyle planning is a core part of preparing for the compensation change.

We help you explore:

• What you want your days to look like
• How spending evolves in early, middle, and late retirement
• Which goals matter most (family support, travel, charitable giving, major purchases)
• Whether your retirement income fully supports these goals
   

The goal is not to restrict your lifestyle. It’s to understand it so your income strategy reflects what you value most.

3. Taxation: The often-overlooked part of the transition

For many Canadians, taxes become one of the biggest variables in retirement income planning.

When employment ends, your tax picture may shift dramatically. Some factors to consider:

• Deferred compensation payouts may arrive over a defined period
• Stock option exercises may create taxable income in the year of retirement
• RRSP withdrawals may need to begin earlier or later depending on your plan
• Pension income-splitting opportunities can reduce your overall household tax
   

Without a plan, these moving parts can lead to higher tax bills than expected. With a plan, they become strategic opportunities.

This is where we collaborate with your accountant and other advisors. Together, we build a coordinated tax strategy that supports long-term income and maximizes what you’ve worked so hard to save.

4. Turning your savings into a sustainable retirement income stream

The compensation cliff is not really about income dropping; it’s about income changing form.

During your career, income is earned. In retirement, income is created from the wealth you've built.

A strong plan:

• Models different retirement ages
• Stress-tests market conditions
• Projects your retirement income across decades
• Accounts for inflation
• Shows how much risk you need to take (or don’t need to take) in your portfolio
• Builds in “what if” scenarios such as early retirement, health changes, supporting children, or legacy planning
   

When you understand how your wealth behaves under many conditions, you’ll be able to make long-term decisions with greater confidence.

5. Planning early makes the transition smoother

The best time to plan for the transition from working income to retirement income is well before you retire.

Planning early allows you to:

• Optimize your tax position
• Time your stock option exercises more effectively
• Reduce the risk of large taxable events in a single year
• Build an investment strategy aligned with your retirement start date
• Understand whether you can afford to retire earlier than expected
• Make informed decisions about pension options, savings rates, and debt repayment
   

Clients we work with who plan early often find they have more choices, not fewer.

6. The goal: A confident, well-structured transition

Retirement should be a transition you look forward to, not one you worry about.

A well-designed plan answers:

• “Will I have enough?”
• “Will it last?”
• “How should I structure my income?”
• “What happens if something unexpected happens?”
• “What lifestyle can I support over the long term?”
   

We help clients integrate personal and corporate wealth, compensation programs, and long-term planning into a single clear picture. You’ve worked hard to get where you are. Our role is to help you take the next step with confidence and clarity – understanding exactly how your success supports the life you want to live.

Ready to plan the next chapter?

If you're preparing for retirement or wanting to understand how your compensation will transition into long-term income, we’re here to help.

Let’s start with a conversation about what matters most to you, and build a plan that supports your goals today and for decades to come.