To get where you want to be, you need to know where you’re going
By Olev Edur
So retirement is on the near horizon—or perhaps you’ve already exited the workaday world. Do you know where you’re going from here and exactly how you’ll get there?
If you haven’t figured it all out already, you’d better get started on a comprehensive retirement strategy, because a lot of changes are in store. To that end, here are six key steps that financial advisors say you must consider as you set about structuring your golden years.
Define what your retirement really means.
Tim Cottee, vice-president of retirement planning at Investors Group in Winnipeg, says many people have no clear idea of what they’ll do for the next 20 or 30 years. “All your connections—professional and social—have been through work,” he says. “Now that you’re not working anymore, what are you going to do?”
Adelle Léger, vice-president and financial-planning specialist at RBC Wealth Management in Toronto, says, “You need to be aware that this is a significant milestone, with a lot of changes taking place. You need a retirement plan that takes all these changes into account, and before you retire is an excellent time to take stock.”
“People think of retirement as one big chunk of time, but there are a number of different stages,” says Kate Epps, a financial planner with TD Wealth Financial Planning in Barrie, ON. “You may have many years feeling terrific and want to travel the world, but as you get older, you begin to slow down. You may want to do less travelling and more gardening, so your expenses go down. But your medical costs can go up, especially if you have to go into a retirement home or assisted living. You need to consider the different stages of retirement.”
Create a financial plan; start early and review often.
Once your retirement objectives are clarified, you must deal with the money question: Will you have enough to fund those objectives?
“The most important thing to do in approaching retirement is to make sure you have a financial plan,” Epps says. “If you’re saving money for retirement without articulating your goals, you’re travelling without a road map.”
Once you’ve developed a retirement financial plan, be prepared to revisit it. “Life changes all the time, so you can’t just set it and forget it,” Epps says. “You need to review it at least annually, or whenever there is a change in your life. And when you’re approaching retirement, there are a lot of changes coming.”
Find a good independent financial advisor.
Proper retirement planning can be a complicated task because there are so many variables—taxes, investment choices, insurance options, multiple income streams, your own personal preferences—and there’s a vast array of complicated products and services out there to meet all your needs. You have to know what’s available and understand how each option can work for you (or not). Skilled professional advice is universally recommended for those contemplating retirement.
“You can’t underestimate the benefit of dealing with a trusted professional advisor,” Epps says. “By way of analogy, you may be able to use your computer to find out all kinds of medical information, but if something’s bothering you, you’re still going to see the doctor. Financial planning is the same. There’s nothing like having someone sitting across the table, someone who knows you and understands the things that mean the most to you.
“A good planner can help you define and articulate your goals,” Epps adds.
Accept your ongoing role as an active investor.
“You’re going to be retired for a long time, but what many people do when they retire is sell their stocks and move out of the market,” Tim Cottee says. “That may have worked well when retirement lasted only a decade, but now we’re looking at retirements lasting 20 or 30 years. And with interest rates where they are, you’re not going to get very good returns.
“My advice is, don’t be afraid of the markets. You have to resign yourself to the fact that although you’re retired, you’re still an investor. You have to keep thinking about the long- and short-term: how much money are you going to need, and how long will it have to last?”
Be flexible about your priorities.
Keep these two things in mind: Retirement represents a major change in your life, and things have a habit of not working out exactly as expected. Your priorities can change, as well, once you’ve had a taste of what retirement is really like. As a result, even though you may have created a detailed, perfectly feasible plan, you need to be prepared to change direction along the way.
You may find that your income from investments is less or your expenses are greater than expected, in which case belt-tightening is required. On the other hand, you may find that your planning has been overly cautious, to the point that you end up forgoing many attractive possibilities.
Don’t forget about your estate.
If you have no loved ones and no favourite charities, you don’t need to worry about your estate and can freely spend all you’ve saved over your lifetime’s work. Otherwise, you need to make provisions for the distribution of your worldly possessions once you’re gone, and you have to ensure that those provisions are kept up-to-date.
“After you’ve been retired for a few years, a lot may have changed,” Adelle Léger says. “It’s very important that you regularly update your will and your powers of attorney.”