Retirement is a reward for a lifetime of work. Why does it so often lead to stress, anxiety, and uncertainty? As you move into this new phase of your life, you must have a plan that considers your financial, health, and social needs. Here are some tips to help you navigate this new chapter of your life.
1. Start with a clear financial plan: One of the most critical aspects of retirement is financial security. It’s important to clearly understand your income sources, expenses, and any debts you may have.
A financial plan:
• can give you the appropriate level of confidence in your financial situation
• can help you to highlight an issue (or opportunity) that may need further attention
• can help lead to better habits (e.g., spending, saving, charitable giving)
• can help you and your family to set priorities
• provides a guide for action and decision making
The benefits of having a financial plan cannot be overstated. You cannot remove all uncertainty from life, but a well-thought-out financial plan can help you become resilient. Understanding and stress-testing your plan’s assumptions is essential to see where the weaknesses may reside. Examples of some stress testing scenarios include higher inflation, lower investment returns, longer life expectancy, and higher spending needs (e.g., medical expenses). Utilizing interactive software programs to assist with planning can significantly improve the experience by allowing you to see the impact of changes to your plan in real time.
2. Keep a budget: We ask that you diligently determine and refine your monthly lifestyle spending. Your financial plan is based on the accuracy of this input. A challenging component of this is forecasting less frequent expenses. These expenses may only occur for some years. Some common examples include:
• purchasing a new vehicle
• an expensive vacation
• major home repairs (roof replacements, installing heat pumps, replacing deck)
• health care expenses
• dental care
Planning for less frequent expenses in a monthly budget is challenging, so we encourage you to itemize these expenses separately. Because this exercise can get unwieldy the further you forecast into the future, we recommend using a five-year or ten-year timeframe. The wild card is health care expenses. Even if you enjoy excellent health with no medical problems, it isn’t easy to account for this. We recommend stress-testing your plan for increased healthcare expenses later in life.
3. Stay active and healthy: Retirement can be a time to focus on your health and wellness. Stay active by incorporating exercise into your daily routine, whether walking, joining a fitness class, or taking up a new sport. Eat a healthy diet, sleep well, and stay up-to-date on medical checkups and screenings. To remain socially active and engaged, consider joining a social group or volunteer organization.
4. Make sure your legal documents are in place: We recommend speaking to your legal team to ensure that you have the appropriate documents (will, trust, power of attorney, health directives) in place and up to date. Here are some additional considerations:
• Review your beneficiaries regularly
• Create an inventory of everything you own
• Tell your loved ones where your documents are and how to access them
5. Automate paying your bills: Setting up automatic payments for reoccurring bill payments can help to save time and money and increase your credit score (if you have the habit of paying bills late). Automatic payments reduce the amount of information travelling through the mail, which may lead to a lesser chance of identity theft. You may plan to travel more in retirement, and automatic payments ensure you pay your bills on time. Another consideration is that we tend to become more forgetful as we age. Having automatic payments set up can help to ensure your payments are made on time.
Opportunities for automatic payments include phone bills, cable bills, property tax bills, water bills, and power/heating bills. It is essential to recognize that there are disadvantages to automatic payments, and for some, the benefits may not outweigh the risks. Some of the risks include the following:
• putting your bank account in overdraft
• forgetting to cancel subscriptions may lead to unneeded costs
• the potential to feel emotionally disconnected from the amount you are spending
This tip may only be for some, but we suggest trying it out with a couple of bills to test your comfort level.
6. Setting a target withholding tax: At the beginning of each year, you should work with your financial planning team to estimate your taxable income.
Your team should give you a reasonable estimate of your total taxable income and your effective tax rate (or average tax rate). All taxable income sources should be considered, including RRIF/LIF withdrawals, CPP, OAS, pension income, and corporate withdrawals. Specific income sources allow you to adjust the withholding tax. With a “target withholding tax” strategy – you set your withholding tax rates as close to your effective tax rate as possible. The goal is a $0 refund when you file your tax return. A $0 refund may sound counterintuitive, but when you receive a refund, you essentially have more tax “withheld” than needed. We would prefer you to have that money during the year to do with it as you please (e.g., spend, save).
7. Consider downsizing: As you retire, consider whether your current home still fits you best. Consider selling your home, moving to a smaller, more manageable space, or exploring options like a retirement community or assisted living facility. Downsizing can help you reduce expenses, free up equity, and simplify your life.
8. Keep learning: Retirement can be a time to explore new interests and pursue lifelong learning. Consider taking courses at a local college or university, learning a new skill or hobby, or volunteering for a cause you’re passionate about. Staying engaged in the world around you can help you stay sharp and keep your mind active.
Retirement can be fulfilling and rewarding for Canadians but requires careful planning and preparation. These tips help ensure your retirement years are happy, healthy, and financially secure.
