To ensure you can maintain your standard of living in retirement, experts recommend planning as far in advance as you can.Getty Images
Planning for retirement can feel like solving a complex puzzle, with each piece representing a decision that could impact your future. But here’s the good news: It’s never too late to take control. In this series, we aim to simplify the process, providing actionable insights to help you confidently manage your financial future.
Ensuring retirement funds are not only robust enough to support whatever quality of life a person pictures for these years – travel, hobbies, spending time with family – is just the first step.
To make sure your nest egg is sufficient, it’s ideal to continue to build wealth in your golden years. A pro-active approach means you won’t have to worry about unexpected dips in your standard of living once you retire.
“It is possible to save enough so that your standard of living does not all of a sudden change once retirement starts. That’s the good news,” says Travis Forman, portfolio manager at Strategic Private Wealth Counsel, Harbourfront Wealth Management. “However, if you’re steadfast in your desire to not have to make any concessions once retirement starts then it’s important to start planning as early as possible,” he continues. “It’s not just a recommendation, it’s necessary.”
Not having enough money in retirement is something that many Canadians are concerned about. A recent survey from CPP investments says that almost two-thirds (61 per cent) of Canadians say they are afraid of running out of money during retirement.
“The common rule of thumb is what’s known as the 80 per cent rule, which is that you should have enough to live on 80 per cent of your income at retirement, indexed to inflation,” explains Mr. Forman, adding that he likes to aim much higher with his clients to ensure there is a “healthy buffer in place.”
The CPP survey also found that non-retirees in Canada have increased the amount they believe they will need to retire from $700,000 total in 2023, to $900,000 in 2024. However, among this same group, having a financial plan was the top reason they are not afraid of running out of retirement income.
“To really guarantee a substantial safety net for our clients, we like to run our accounts at 115 per cent pre-retirement income, indexed to inflation until the anticipated plan end,” says Mr. Forman.
Harp Sandhu, senior wealth advisor with Sandhu Advisory Group at Raymond James Ltd., adopts a similar strategy with his clients so that whatever number they give him as their ideal retirement goal, “we tack on a little more.”
“We always say the most catastrophic thing in the world in retirement is outliving your money,” he says.
Mr. Sandhu also advises his clients to remain realistic with their retirement goals: How much can they afford to save before their golden years? What sort of lifestyle can they afford with that money? What are your guaranteed sources of income, like a pension for example? Do you have money saved in TFSAs, RSPs and other investment vehicles? And what is your monthly shortfall?
He explains that having an investment portfolio that is set up to cover any shortfalls in retirement and how aggressive the portfolio needs to be depends on the needs of the client.
“But being aggressive doesn’t mean buying riskier stocks to me, it just means buying a lot more of the dividend-paying stocks” says Mr. Sandhu. “To me, aggressive is a 100 per cent equity portfolio whereas moderate might be a 70/30 or 60/40 split, depending on what you need.”
Andrew Sherbin, financial advisor at Edward Jones, says that having a holistic financial plan that incorporates both short- and long-term goals is the key to a healthy retirement.
“It’s a lot to come to someone initially for a financial plan, but these are all the things that really should be mapped out and the retirement conversation comes from there,” says Mr. Sherbin, who says this approach allows clients to look at their current financial status and consider important costs in the future.
“The new retirement looks like it’s financials, but it’s health, mental, physical, it’s family, and it’s purpose,” he says.
Mr. Forman explains that there are several ways to make your money go further in retirement and even continue to build wealth in those years.
“For instance, make sure you are running a regular tax sensitivity analysis and that your non-registered accounts focus on deferring annualized taxation,” he explains. “By having your account setup to defer annualized taxation, you end up deferring tax and making money with what would have been annual tax, in turn, making your investments go further.”
Downsizing debt is another way Mr. Forman suggests to ensure retirement funds can last and passive income opportunities can offer retirees a way to garner another source of income in those years.
“These include managing a rental property which could generate a significant amount of passive income,” he adds.
For him, the main thing is to start thinking about retirement and how your current spending habits might be impacting the life you want to have in those later years.
“The reality of retirement can feel daunting and so the best thing to do is save more and change your consumption behaviour,” he says. “The earlier the better.”