Retiring within five years, read this

 If you’re within five years of retiring, now is a good time to review your plans for retirement. But five years away, you can see retirement with greater clarity. It’s a good time to review your retirement goals and dreams.

Whether you’re planning extensive world travel or eager to spend more time with family closer to home, people often find that they spend more when they first retire than they expected. With five years to go, take some time to draw out a realistic spending plan for the future and then plan for inflation or expenses you may not have considered.

Inflation is the enemy if you have not planned well. Spending plans in the first stage of your retirement could be more expensive. This round of inflation is heating prices, well the investments and savings are not keeping up. In the past, when prices were going up, those who invested also had their savings, getting higher interest rates and stocks did well. Not today, prices are going up. Interest on savings accounts is not and the investment market is sluggish. This leads to the value of your portfolio is depleted. Take some time to draw out a realistic spending plan for the future and then plan for inflation or expenses you may not have considered.

As of 2020, the average Canadian will live for 81.7 Years, according to Statistics Canada. But that figure doesn’t tell the entire story because it represents life expectancy at birth. If you’ve already made it to 60 or 65, your chances of outliving the age of 81.7 are much greater.

You can do a simple calculation known as the ‘four percent rule’ to perform a quick check on your finances. Multiply your projected yearly cash needs by 25 and you’ll have some idea of how well you’re prepared.

At age 65, a person expecting to live on $75,000 per year will require $1,875,000 in investments to take them to age 90.

If your portfolio has been performing to your expectations in recent years, recognize that the economic landscape is more volatile than it once was. Five years out is a good time to have your portfolio reviewed to optimize diversification and asset allocation for current conditions.

Government of Canada bonds, possibly the most secure investment available, are providing returns well below the current inflation rate. However, undertaking appropriate levels of risk can provide better returns.

Withdrawing cash from a retirement portfolio too early can affect its overall longevity and performance, especially when segments of the portfolio are underperforming. A strategic cash reserve — enough to last two years — can allow for drawdowns without depleting the portfolio during periods of sub-optimal performance. Reach out for expert advice and by talking to an advisor well before retirement, you can optimize the potential of your investments to provide adequate retirement income to support the lifestyle you’re counting on.