Whether you are in retirement or just approaching retirement, many variables are coming into play. These might include any or all of the following:
- How much money do we/I have? How long will this money last?
- What will I do with my time? What do we want to do? Do we want to do the same things?
- How is my/our health? What health care do we have? Dental, prescription, long-term care?
- What are my investments? Will my investments last and pay me for the rest of my life? Will my investments be safe for 30 years?
- Is market volatility going to affect my retirement income?
- Do I know what fees I am paying? Are my fees affecting my returns?
- Am I getting the answers I am looking for?
- What is my CPP payment? My OAS payment? When can I start receiving these payments? Should I delay these payments?
- Where and when do I withdraw money from RRSPs, RRIFs, LIRAs, TFSAs. When do I use money from non registered investment accounts?
These are only a few of the many important questions you may be asking. Let’s start with this list and discuss some of these variables.
There is a commercial on TV depicting people picking dollar numbers and stating this is their retirement number. The numbers range from maybe $453,000 to $2,670,000. It certainly is not targeting individuals with $6,000,000, possibly assuming someone with this amount of money is not asking the same questions. However, we know even individuals and families with larger sums of money, are asking these questions and even more complicated questions. The commercial seems to leave one with the impression that the company behind the commercial will be able to help you reach whatever your targeted amount is.
About the most reasonable message this commercial delivers is: Yes, everybody will have different amounts of money at retirement.
The most important fact facing anyone at or close to retirement is: The amount of money you have at retirement is what you will need to look at, among many other factors. Is it enough? This question is different for everyone.
- What is your budget? Do you know? Should you take a year to determine what your new budget is, now that there is not a regular pay cheque deposit in your bank account each month? What are you spending money on?
- If someone has $1,000,000 and they are earning $50,000 (5%) a year, but spending $70000 a year, there will be a very rapid decline of their money.
- You will want to look at all sources of available income and commit to a plan. What are your CPP and OAS payments and when should you start taking them? Get registered on the CRA and My CRA websites to find out what your payments will be. Try these links to help you out:
- Are you speaking with your investment advisor about a plan? This should be a comprehensive part of the service you are paying for.
- How much non-registered money do your have? Do you withdraw these funds before you withdraw your registered funds? There are significant tax advantages and disadvantages to be considered.
- We have worked with clients who have $200,000 and retired at age 65. With $1000 CPP, $600 OAS and $668/month ($8000 (4%) per year) from their savings, and a budget, they manage and have a comfortable retirement. $2268/month. They need to make this work.
- We also work with clients who have $3,000,000. At 4% they have $120,000/year available. This might be somewhat better than the previous situation, but they also need a budget and planning. What happens if they spend too much in year 3 and the markets decide to decline for 4 years in a row?
Sitting down, reviewing, planning, discussing, are all actions you should start doing and you will most likely continue to do this throughout retirement.
This is a big question. You most likely have been going to some type of work and had some daily routine for the last 35 or 40 years. Now, in one day, all that is going to change. Are you going to travel? Play more golf. Enjoy more of your hobby. Are you and your partner or spouse on side with what each other wants to do? This is certainly a discussion you want to start. Maybe you will work part-time or volunteer on a regular basis. At the very least, you should be thinking about these things and any additional costs they may add to your budget.
What is the state of your health? What will your benefits be in retirement? You may have a plan with your company that continues through retirement. Each of the provinces has a seniors program which starts at age 65 and provides fairly reasonable prescription coverage among other assistance. These programs are administered by the Provincial Blue Cross agencies. You may also want additional Dental and Travel coverage and decide to pay a monthly premium. These links will provide some answers if you live in Alberta. Search Provincial Seniors Benefits or Blue Cross for any other province you may live in.
What life insurance coverage do you have? Have you reviewed your policies with an insurance professional? Did your advisor have this discussion with you or offer this service? Again, this should be a comprehensive part of the service you are paying for. There may be many unanswered questions, premium concerns, future reductions of coverage and many more details to consider. We have many clients with expensive premiums that may be a large expense in their retirement budget. There can also be surprise cash values, which could be available money now or later.
Have you reviewed your investments, and do you understand where and how your money is invested? This is one of the most important areas of discussion you should be having with your advisor. What would your current portfolio look like if the market declined 25% and remained that way for several years. This could seriously impact your planned withdrawals and changes would be required.
Does the volatility of the stock market concern you? Adding fixed income investments will help to reduce the volatility and maybe you should be discussing this with your advisor. Guaranteed* interest rates may offer more safety and less volatility in your portfolio. You should probably not be looking for maximum growth opportunities going into your retirement. Getting the best out of your circumstances would be a great way to start.
You can have a comfortable retirement with a conservative well-balanced portfolio that suits you.
*Bond and GIC rates are subject to change
(September 2019 Presentation. Date and time TBD.)
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