Updated: Jun 25
Retirement is one of the most significant life transitions you experience.
Our series of retirement posts are designed to help you think about the critical components of a retirement plan so you successfully navigate this important life transition.
As you review this content, I would encourage you to have a note pad by your side.
If you are serious about getting clear on your retirement dreams and plan, you will want to spend some time jotting down your thoughts.
If you'd like to download a FREE retirement checklist access it here!
Throughout this article, I'm going to discuss how you can get clear on your retirement plan by outlining key points to review and questions to address.
Let’s take a look at the planning model for a successful retirement plan.
The Planning Process – Our Model
Our model integrates what we feel are the 10 most important components to your retirement plan.
4. Current reality
5. Analysis and forecast
6. Gaps and opportunities
8. Action plan
10. Review & Repeat
Let's look at each of these components in more detail.
When it comes to retirement income planning, vision is simply looking out into the future to forecast what things might look like 5, 10, 15 years from now. We often here things like we plan to garden or travel etc but realistically, those are things you might do a few weeks of the year. What will the day-to-day look like?
Where will you live?
What are you doing to do to fill your day?
Are you working or planning to be a consultant part-time?
What will your relationships look like? Partner, friends, kids?
Do you plan to be involved with your community?
Spend a few minutes jotting down what you envision your retirement will look like by answering the above questions.
Maybe these questions have prompted other questions for you to consider.
Let’s talk about values.
When it comes to retirement income planning, and wealth planning generally, there is a lot of focus on money, investing, tax planning, etc. However, it’s always important to keep in mind that these are just tools in your kit bag on your journey to a successful retirement.
The real question is how you will use these tools to fulfill your vision for your retirement?
When I work with my client families, I encourage them to work on their vision for their retirement years and to spend time getting clear on their values.
Specifically, I ask a very open-ended question, “what’s important about money to you?”
The answers are never about earning a better return or saving taxes.
More often than not my clients say things like:
“Peace of mind”
“New experiences and personal growth”
“Helping grandchildren with their education”
“Leaving a legacy”
“Having enough resources - financial freedom"
The video that follows will walk you through how I use the financial roadmap and values questions to help my own clients get clear about what’s important about money to them and what their aspirational goals are for the retirement years.
Once you are clear on your vision and values for your retirement years, you can start working on the specific goals that are in line with your retirement vision.
Goals are the concrete steps that need to be taken to make your retirement vision a reality.
There are innumerable goals that you can set for yourself.
The following are a few examples:
What level of after-tax income do you desire when you retire? How will you get there?
Are there any travel experiences or adventures that you’d like to engage in during retirement? Bucket list destinations?
Is philanthropy important to you? Are there specific organizations or community interests or charities you would like to get involved with or to give to?
What about your home and other property? Where would you like to live and what style of a property would you like to have? Are you thinking of downsizing? How do recreational properties fit into your vision?
How specifically do you want to assist family? Are there any big family milestones coming up that you'll want to help with such as graduations, weddings, new how purchases, grand baby RESPs?
A quick video on retirement goal planning for you!
4. Current reality
Now that you’ve worked through your most important aspirational goals and vision for your retirement, it’s time to work with the numbers.
As a part of the process, this step works best once the aspirational work is done because it’s the aspirational goals that drive the financial requirements and create the inspiration for you to work towards your goals.
When we’re talking about the current reality, we are talking about the reality around the following topic areas:
1. Net worth
Drafting an accurate assessment of your current financial reality as it relates to assets and liabilities. Keeping an accurate listing of your networth enables you to measure your financial progress from one month or year to the next.
Up-to-date market values with a defined contribution pension plan or group RSP’s. If you are participating in a defined benefit pension plan, obtaining up to date benefits information and forecasts about your future retirement income.
3.Investments – A detailed breakdown of your investment holdings. This would include a breakdown by investment category; RRSPs, tax-free savings accounts, non registered investments.
The listing of investments should include up-to-date statements that list investment holdings. This allows either you or your retirement coach to properly break down the investments by investment category.
The main categories would include; fixed-income, Canadian stocks, US stocks, International stocks and real estate as well as cash equivalent investments.
It’s important to have this listing of investments because it forms the current reality around the expected return of your portfolio based on the mix and the degree of risk attached to the current portfolio.
4. Income and expenses
This seems like a simple topic and yet it’s one of the most important issues in building your retirement strategy.
Essentially, it’s about understanding what level of after-tax cash flow you require to maintain your lifestyle.
It's understanding the difference between discretionary and non discretionary expenses as well as the income that you will require for some of your aspirational goals through your retirement years.
In a later section, we will review the income and expense discussion in far greater detail.
5. Tax assessment notices and previous tax filings
Understanding your current tax position allows you to plan to reduce the tax you pay and to conduct an audit to ensure you are taking full advantage of all tax planning opportunities.
As well, understanding your current tax reality is the first step to planning what your future tax reality may look like.
5. Analysis and Forecasts
Once you’ve determined current reality and gather all relevant financial information, it’s time to engage in financial forecasting and retirement modeling.
To accomplish this, in my own work with clients, my practice uses powerful computer forecasting tools that essentially simulate what retirement could look like using a set of assumptions that we feel are appropriate to the client's situation.
There are financial planning calculators available online. However, most of them fall short of being a comprehensive solution for modeling retirement income planning.
Having access to powerful computer modeling software is one reason to give consideration to working with the retirement planning coach who likely has access to this kind of planning tool.
The video that follows provides you with a short summary of the type of computer modeling that I’m referring to.
In addition to the financial modeling, we encourage clients to engage in thought experiments as to what their future retirement life might look like.
How will you spend your time?
What does your current day-to-day and week to week schedule look like and what might your schedule look like once you’re fully retired or even semiretired?
In what ways might your relationship with your partner change?
How will you interact with one another?
How could retirement change the relationship?
Be realistic here. Anticipate potential problem areas and begin thinking through solutions to these sticky issues.
Before you are retired, try living on your retirement budget. This may end up being a really powerful eye-opening exercise or confirm that you’re on track and that your planning is realistic and achievable.
Consider experimenting by using vacation time to live like you are fully retired. Practice retirement to see how it feels.
As part of your planning, do you want to continue to generate some level of employment income? Before you retire get specific about how you can monetize your expertise, passions or hobbies.
How can you use the skills and experiences in your preretirement life to generate income post retirement?
Before you retire, be sure to start building the professional network that can help you build business opportunities and alternative income streams to supplement investment and pension income.
6. Gaps and Opportunities
Now that you’re clear on current reality and have forecasted and simulated your future retirement, you are now in a position to identify gaps in your current plan and to identify opportunities you can take advantage of.
This could include such things as:
Does the analysis confirm that you have sufficient pensions and asset values to sustain income goals for your retirement years?
What investment returns, based on the forecasting, are required on financial and real estate assets for you to achieve your retirement goals?
Does the analysis identify planning strategies that can increase after-income?
After confirming that you can fund your long-term income goals as a result of financial forecasting, is there potential value on your net worth statement long into your retirement years that could be used for legacy purposes?
Revising the plan is a process that flows in and out of a triad composed of:
1. Assumption changes
2. Goal revision
3. Strategy introduction
You should use the triad on a regular basis to ensure that you stay on track.
The synthesis of these three factors allows you to arrive at a working model that will guide implementation of the retirement strategy.
Of course, you don’t need to be working with the retirement coach to engage in this process. It’s definitely something you can do on your own. Better still, if you have a spouse or partner, get them involved in this process.
As well, if you have trusted friends who have experienced the retirement journey before you, take advantage of their experiences and wisdom by talking about the transition and what lessons they have learned. Ask them what went well and what would they do differently.
Study after study confirms that the best solution is to work with a retirement coach. Advised households grow wealth significantly over time. However, you might ask pose yourself the question "Are these investors wealthy because
they have worked with advisors, or were they already wealthy before seeking out
Research shows that most investors first begin to work with an advisor when
they have only modest amounts of savings.
An Ipsos Study noted that “ 37% of mutual fund investors had less than $10,000 in total household savings and investments excluding their primary residence when they first started using a financial advisor, and 57% had less than $25,000. ”
Great benefits arise from the discipline of developing and following a professional investment & retirement plan. Investors with a plan save more regularly and tend to avoid the common investment biases and errors.
An investment and retirement professional will build a customized plan and coach you on a regular basis to implement the plan, review the plan, and adjust along the way.
You only retire once but we've helped countless individuals navigate this transition. With so many moving parts, there are benefits to working with an expert.
The following video discusses our retirement coaching services.
8. Action plan
You have now prepared your planning model that reflects:
Assumptions that are reasonable and you’re comfortable with and are based on solid research.
Up-to-date financial data
Clear goals and objectives
Your forecasting and scenario planning is now complete.
Now it’s time to develop a detailed action plan of the key tasks required to put your retirement plan into motion.
Each task should have a description, due date and the list of who is responsible.
For example, one of the goals or strategies that could potentially come onto your planning is to update your estate plan.
This action could look like this:
Description – updated estate plan including wills, powers of attorney and health care directive.
Who: Sally and Sam sample and their current family lawyer who can refer them to an estate planning Specialist.
Our family lawyer: Name Here
Our financial planner: Name Here
Contact our family lawyer to obtain a referral to the estate planning Specialist (due date)
Contact our financial planner to have them prepare a memo that can be forwarded to our family lawyer so that they have the broader financial context for our planning (due date)
The due date for the completion of our overall state planning (due date)
This step in the process flows naturally out of the action plan listing.
However, to make sure all these items are attended to, you or your retirement coach will need to review the action list on a regular basis to make sure you are making steady progress as you implement your retirement plan.
10. Review & Repeat
Reviewing the plan is critically important. Without this step, it’s easy for your plan to deviate from the expected outcome.
These reviews take into account such things as:
Actual lifestyle costs compared to the budget.
Actual investment returns on the portfolio compared to the forecasted returns to fund the plan.
Current tax laws relative to the laws in place when you retired. If they’ve changed are there any implications?
Changes to family circumstances (new marriages, grandchildren, separation or divorce or death and increase care needs of aging family members)
The current state of the economy relative to when you retired? If things have changed, quantify the implications and revise the planning accordingly.
Revisit your appetite for investment risk compared to when you retired. If it’s changed there may be a requirement to revise the portfolio strategy. This could have implications for the overall plan.
The review process is analogous to flying overseas.
The crew files the flight plan and you take off. On a regular basis, the crew has to monitor the progress. The crew constantly needs to make small adjustments to the flight path. Without these regular adjustments, the flight could end up wildly off course.
Consider this. If you’re going somewhere and you’re off course by just one degree, after one foot, you’ll miss your target by 0.2 inches. Trivial, right?
What happens as you get farther out? After traveling from San Francisco to L.A., you’ll be off by 6 miles.
As crazy as it sounds, small deviations, over time, can make a huge difference. Especially with your retirement plan.Reviewing and adjusting your plan along the way is critical.
Yes, all of the previous steps are important components to building your plan but the review process is absolutely critical.
This is one of the reasons why working with a retirement coach can be so helpful.
Of course, individuals can do this themselves but life sometimes gets busy and things fall through the cracks.
If you want to have a discussion about our services and how we can help you, send us this contact us form in order to set a no-obligation meeting to see how we can help! Use this link to Contact us!