5 Golden Rules of Retirement Planning

The most common question I get as a Financial Planner is “How much can I afford to live on or take out of my investments every year during retirement?”  Naturally, this question has many assumptions and everyone is different, but here are five golden rules when it comes to retirement planning;

1.       Don’t expect to reduce your spending in the first few years of retirement, this is the time when you are healthy and finally able to do the things you have always dreamed of, such as travelling and golfing – so plan for it.

2.       Plan for increased longevity.  The average person will retire today at 61 years of age and live almost three decades in retirement.  In fact, it is likely that if a couple retires at age 62, one of them will still be living at age 92.

3.       Keep your withdrawal rate as low as possible for as long as possible, despite the increasing desire to spend in your early retirement years.  If possible, keep your withdrawal rate under 5% and increase if needed as you age.  Keep in mind this is the withdrawal rate from your investment portfolio, which does not include your pension, OAS or CCP.

4.       Plan for discretionary health care expenses.  This could be in the form or retirement housing, cross-border health care or even potential amendments to the Canadian system.

5.       Don’t go too conservative too quickly, thus “going broke safely”.  Capital protection is important and while the return and safety of bonds can be attractive; it is important the average person still has some equities well into their retirement.  This will be even more necessary if we experience a continued rising interest rate environment (causing bond values to drop).

The golden years are meant to be just that – not a time to cut back on your lifestyle.  Unfortunately, outliving money will be a more likely scenario for many Canadians who have not properly prepared. 

Like never before, aging Canadians need strong leadership and financial advice, don’t wind up somewhere unexpected; for a review of your plan give me a call.

Have a great weekend,

Tracey