After years of living the “rat race”, you are looking forward to the day when you can start living on your own schedule. But do you have enough assets to enjoy your preferred lifestyle? When considering a proper retirement plan it is critical to think about the three phases of retirement planning.
A good retirement plan starts on your first day in the working world. This is the accumulation phase. The earlier you can start saving, the more your money will have a chance to compound throughout the years. However, most young people don’t have huge incomes, so this is a challenge.
Ironically, you make the most amount of money just before you retire. Now is the time to look at your spending plan for retirement. What are the regular expenses going to be in retirement and what new things do you want to do. Plan for what activities you want to plan to do in retirement.
If you are considering semi-retirement or phased in retirement then look at the timing and taxation of when to take CPP and OAS. This may help you deter amount of time and income that makes sense, especially if you are going to be earning income between age 60, past age 65, or even up to age 70 as many professionals do.
Lastly, this is the time to reposition some of your assets for producing income. Specifically having an investment plan that works with your retirement plan means that you should plan ahead to gradually allocate one to two years of gains from high growth investments to low risk contrarian investments. Having a couple of years of income in low risk investments, that tend to do well in years when growth investments (in stock markets) have (or are) declining, means that you will not have to sell growth investments when they are down. Instead you can let them recover while you draw on other investment types. Good pre-retirement planning can get you off to a great start in retirement.
At this point, you will be concerned with income and wealth preservation. Growth will take a backseat so you can focus on paying the bills with the proceeds from your nest egg.
In retirement you will need to balance the need for income with the continued need for growth so that your investment income keeps up with inflation. In the early years of your retirement you want to balance doing the activities you want while not dipping into your investment principle, which could reduce your retirement income latter.
With careful planning, you can make sure your money outlasts you. There are many different income options available: RRSPs, TFSAs, CPP, OAS, annuities, investment funds and more. All of these options should be reviewed, and the timing of the income coordinated, so that you understand the framework in which they produce the most efficient long term, after tax, income. This should be harmonized with your desired lifestyle choices.
But how can you choose which investments are right for you? That’s where an experienced financial advisor can help. An advisor can help you sort through your priorities, goals, and risk tolerance levels so you can make the decision that is the best one for you.
Like a tour guide in a foreign country, a financial advisor can guide you through the world of finance to make sure you have the best retirement experience possible.