Ready to retire?

Ten years ago I officially retired, however, I actually retired 16 years ago and worked full and part-time for another six years. In those six years, I finally got around to finishing my retirement planning. I thought about retirement about four years before I retired and then I retired because of my wife’s health problems, not because I was ready to retire. I do not regret that decision. I went back to work and by doing that, I could think about and understand what I really wanted from retirement. Are you ready for full retirement? That is a good question and one that you should seriously consider before deciding to retire. I was not ready, but I was lucky to go back to work. Most will not have that opportunity because of skill sets, because of health, or because of supply.

One of the first things I realized when I retired is that my income and expenses had changed. I followed the rules of thumb, and I thought I would need 70% of my final salary in retirement. I did not need that. In fact, I found I was spending between 50 and 60% of that number. Many of the expenses we have when we are working are no longer a concern. In my case, spending on gasoline, a month was reduced by two-thirds, saving hundreds of dollars.

One of the enormous expenses I have is my property taxes, but our government allows seniors to defer this tax, which many have done, again saving thousands of dollars a year. Auto insurance coverage for seniors who drive for pleasure is another expense that was reduced. So, as you sit down and try to figure out your annual spending, it is important to recognize that many of your costs will be reduced or eliminated. The amount you think you will spend will drive the decisions around how much to withdraw from your investments, and how long your money will last at that spending rate.

Besides your regular after-tax spending, you should also factor onetime expenses into your plan. In my experience, most of these expenses may include vehicle replacement, travel, home renovations, and a big one for most of us, monetary gifts to adult children or grandchildren.

Another interesting aspect of retirement is that when you first retire, your spending will be greater than later in retirement. Over the last few years, my expenses have reduced because of reduced activity, and the Pandemic. Over your retirement, your spending will not be static. It may, over time, go down. Retirement is about designing the lifestyle you want to live. It would be a shame not to use the resources you’ve saved over many years to build your ideal retirement. What you don’t want to do is have a retirement plan, where you have a lot of money in your 80s and 90s instead of spending early and enjoying your retirement while you can.

One of the most popular series of workshops we give is on “Personal Planning”. Personal Planning is end-of-life planning, making sure your will and estate planning documents, including the beneficiaries on your insurance and investment accounts, are up to date. It also includes having a Power of attorney in place along with Advanced Care Planning and Advanced Directives and Representation Agreements in place. These documents may have different names in your location, but they allow for your voice to be heard about the medical care you want in your last days.

One of the biggest areas of concern we see as we give our workshops is “what do I do now” because it’s common for one spouse to take the lead on financial matters for the household. This can be problematic if something happens to the chief financial officer of the house. They may die first or become cognitively impaired and can no longer manage their finances or investments.

Men are statistically more likely to die earlier than women. If the surviving spouse has never been involved in the finances or investments, you could leave them with an unwieldy mess. One way to resolve this issue is to make a file for when I die.

In that file include a checklist of items like notifying Service Canada of your death (for CPP and OAS), transferring registered accounts to the surviving spouse’s name, cancelling credit cards, removing your name from joint accounts and other bills, to name a few.

There’s a lot to think about in planning your retirement. When you are 1-5 years away from retiring, start thinking about your retirement. One important decision I didn’t address is how to decide on an actual retirement date. By thinking about retirement and potentially getting help from a financial planner, you’ll find out how prepared you are both psychologically and financially for retirement.

You might find you need to delay your retirement by a year or two to shore up your finances. Or you might find that you can meet all of your retirement goals and can retire much earlier.

The danger in not thinking seriously about retirement is falling into the “one-more-year” trap and continuing to work when you don’t have to, or being fixed on an early retirement date even though you won’t have enough resources to sustain your needs in retirement.