7 crucial points to consider before building your retirement plan

7 Cruical Points to Consider Before Building Your Retirement Plan

I had a lengthy planning focused discussion recently with a couple who were referred to me by clients.  In their early 50s and a goal of retiring at age 62, these folks were keen on building their retirement plan. While they were quite eager and excited about getting started, our pre-planning discussion uncovered some troubling assumptions they had regarding their retirement.  Since I encounter these biases and assumptions frequently, I thought that it might be helpful if I created a pre-retirement planning guide. 

Create a Vision of Your Retirement

In my humble opinion this is the most crucial and enjoyable part of the planning process but unfortunately the most overlooked by advisors and retirement planning pundits.  Most books and courses focus on starting with the “how much” question based on a formula as a percentage of your current income and expenses.   However, I feel it makes sense to start first by articulating your hopes and dreams in retirement (“what” and “where” questions instead of “how much”).  I feel it is critical to address the “what” and “where” because these two issues play a doubly critical role of not only determining how fulfilling your retirement will be but they also influence to a large extent when you will retire and how much it will cost.  Some helpful questions to consider when creating your vision: Where would you like to live? What new things what you like to learn about and what new places would you like to see? What passions can you develop?  Where would you like to volunteer?      

A Saving Discipline is Crucial

Pretty obvious, I know, but in an easy money credit driven society developing a savings discipline can be difficult to master for many people.  You don’t need to reinvent the wheel here but rather embrace the many tried and true axioms like “pay yourself first” or set a goal to save a percentage of your take home pay each month and set a goal to maximize your contributions to your RSP and Tax Free Savings Account (TFSA) The earlier you can develop these habits the better.  Don’t forget that accelerating the paying down of your mortgage is also a viable saving strategy.  Just remember to reallocate the capital you are currently paying on your debt to your long-term savings plan after you burn your mortgage!  

Put Your Plan in Writing

Simply put my experience and every survey of retirees indicate that there is a direct positive correlation between having a written retirement plan and achieving your retirement goals. 

Get the Right Advice

Most people agree that when you want a job done right it makes sense to hire a professional and the same can be said for creating your retirement plan.  In addition to understanding how the myriad of investment and tax issues relate to your situation, the right financial professional can provide objective third party advice and direction as you build your plan.

Planning to Work in Retirement is Not a Retirement Plan

According to a  recent survey conducted by Sun Life and Ipsos Reid featured in the Financial Post states only 30% of Canadians between the ages of 30 and 65 surveyed plan on retiring fully by age 66 and a majority of those planning on working in retirement plan on doing so because they feel they have to continue working.  My advice to clients when constructing their retirement plan is plan to work because it provides satisfaction, fulfillment and enjoyment – not because you have to.

Don’t Assume Your Living Expenses will be Significantly Lower in Retirement

This of course relates heavily to my first point – Creating a Vision – but many people assume expenses will fall substantially in retirement without a basis for this opinion. 

Your Home Is Not A Retirement Savings Account

Given the continued strength of the housing market in the Halton region, many people I help typically feel that their home is their security blanket and will provide a boost to their income generating assets when they downsize in retirement.  However, downsizing can be complicated and may not provide the assumed financial results.  One only has to look to our neighbours to the south to remind us that real estate like all asset classes can correct substantially and provide many years of below average returns.  I typically produce a retirement “base plan” that does not include downsizing and one that models a downsize scenario in retirement that provides upside to the base plan.