Don’t let the math scare you. Financial Planning for your future is not an easy calculation.
Don’t be among the 50% of Canadians who don’t have a written financial plan. As the old saying goes: ‘Failing to Plan is planning to Fail’.
There are many inputs and variables required to help make your Financial Plan as accurate as possible. Even if you have a passion for mathematics, this Financial Goal Model doesn’t capture everything. There are other variables and potential stressors to the plan such as how long you will live and need money, future inflation and the possibility of a market downturn caused by a recession or another economic event. Then there are annual tax considerations, especially as you turn 60 or 65, accounting for government benefit payments such as CPP and OAS (Old Age Security). Your annual taxable income in retirement should really be managed in conjunction with your accountant and investment advisor, otherwise benefits such as OAS could be subject to clawback. What about the value of your home or various properties? Could they need to come into play to fund your retirement at some later stage? If you have a pension of some kind, its important to input those numbers as well in terms of the income it provides you but also to understand their features and possible limitations such as indexing and survivor benefits.
Estate tax is another major point of consideration. What are the projected taxes payable upon death at different projected points in time? How can these taxes be minimized or offset?
These are the types of considerations that go into a full financial plan. At RBC Dominion Securities we utilize elite financial software to help answer your most important questions regarding your retirement plan such as:
- What is my current state?
- How much will I need to retire comfortably?
- Could I run out of money?
- What can I do to help reach my goals?
- Will my family be adequately provided for?
Your success won’t only be measured by how well you and your financial advisor plan for your future, but also how well you execute on the actual plan in retirement. It should be a living, virtual document that is revisited every 2 years or so to measure progress and refreshed with any changes to your current state. I find this process extremely useful for helping to define the level or risk required at the portfolio level to help my clients achieve the required return they will need. Otherwise, the objective of a higher return, just for the sake of making more does not have proper context and could pose a greater risk to one’s financial future.