As
you prepare your plan, think about what you will be doing through all three
stages of retirement, not just the first stage. Imagining your retirement
lifestyle also increases your desire to retire, while preparing you mentally
for the changes retiring will mean to you. Develop a personalized spending
estimate based on your interests and planned activities. You are in control and
you decide on the lifestyle you want in retirement, including where you will
live, and what you will do. Remember that after the first ten or so years of
retirement you will start to slow down and your spending will decrease. Most of
us spend less as we age because we are less active For most of us, the first
stage of retirement ends at about age 75. So our spending declines for a few
years. The problem is that as we age, we may experience more medical expenses
and may need long-term care, which is expensive and needs to be planned for
while you are young.
Inflation
is a reality in our economy and it averages about 3-4% a year. This means that
your savings or investments will reduce by this amount unless you have invested
wisely. Don’t forget to include inflation in your spending and earnings
estimates. Everything we spend money on in retirement will increase in price
over time because of inflation.
I
remember when I first retired, I sat down with my accountant and he talked
about the fact that most of us in most retirement do not plan for medical
expenses and long-term care because their timing and amount are unpredictable.
My accountant talked to me about many of his clients who underestimated these
costs and overestimated what government programs will pay for which resulted in
some very nervous clients.
Think
about the three pillars of retirement that we have in Canada and may have in
other countries. All Canadians are entitled to receive Old Age Security, (OAS)
and if you do not have any other income you may be eligible for the Guaranteed
Income Supplement (GIS) (The amount will reduce if you have a high income). If
you worked in Canada you are probably going to collect Canada Pension (CPP)
(This is based on years worked and the amount of money you paid in each year)
Many Canadians may receive a company pension of some sort, or they may invest
in Registered Retirement Savings Plans, or Tax-Free Savings Accounts to
supplement their guaranteed income (OAS, GIS and CPP). This provides all
Canadians with a level of financial security because they will have that income
that is guaranteed no matter how long they live.
Do
you have a spending strategy for your investments? You need to establish a
spending policy. Most people don’t. They “wing it.” I, like thousands of other Canadians, had to
sit down with my planner to decide how I wanted to take out of my Registered
Retirement Income Fund (RRIF). I took out 8 percent based on my estimates of my
lifespan and the rate of return I expect in my investments. Surveys indicate
most people believe they can spend 7% or more of their retirement portfolio
each year without the risk of running out of money. But the consensus among
financial planners and economists is that the maximum safe spending rate is
about 4%. My advisor was certainly strong in pushing me to stay safe and take
out only 4%. We will see if she was right or if I run out of money
As
part of your plan, you need to make your will, complete a power of attorney, in
BC you should complete a Representation agreement or an advanced directive. You
may also consider completing an advanced care plan or an advanced directive.
