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;
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.
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.
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.
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.
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
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