Saturday, February 22, 2014

Retirement saving realistic or idealistic ?

Planning for retirement can be overwhelming.  An RBC study reports that only 52% of Canadian boomers actually put a plan on paper despite understanding its importance. 

According to a recent Investors Group survey, financial concerns affect 32% of Canadian couples and 60% of them put retirement savings worries at the top of the list.

For many Canadians, a sense of futility comes from thinking "I'll never be able to save enough money." They might be influenced by the  rule of thumb that suggests 70% of pre-retirement income is needed to maintain a current standard of living.

Determining the figure that is right for you starts with analysis. The idea of doing Cash flow models is scary to most folks who do not want to think about their own mortality or cash flow analysis, investment returns clawback on Canada Pension, converting RRSP's to RRIF'S or Annuities.

For those who want to start on this analysis the government of Canada has created an excellent Canadian Retirement Income Calculator that takes into account such things as CPP, pensions, RRSPs and other sources of income like annuities.

Sit down with your significant other and try to determine your  income goals, once these have been set, an analysis should be done to determine the income sources. 

For most people, a substantial portion will be drawn from CPP and OAS and some of you may have some investment portfolios. As retirement nears, these portfolios should be prepared for the transition and structured to replace employment income. If you have an investment portfolio, talk to your adviser about how to make the transition from growth to income. This generally means a more significant weighting in fixed income as well as other investments that provide a regular income stream, such as high quality dividend-paying investments.

Good retirement income plans will also make use of guaranteed income sources that guard against volatile markets and inflation erosion. These include government benefits, available pension income and annuities.

Proper retirement planning goes beyond the management of the retirement portfolio. Estate planning also enters the picture, both from the perspective of how the money will be distributed to heirs but also to more sensitive personal issues. 

We all want to retire with sufficient income to carry us through and, hopefully, with enough to leave something for their children. For some of this is important, for some of us the slogan "I am spending my children's inheritance" is the way we want to go.   However, if you allow themselves to be overwhelmed  by he complexity of the planning you may never be motivated to begin saving. Determining the right number takes time, but the time is well spent.

Thanks to Kim for the idea.

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