ALTHOUGH many investors carefully save for retirement, most are not prepared for the reality of managing their money to support the lifestyle they want.
As my team has specialized in retirement planning for many years, and we've come across all sorts of scenarios, I feel I can provide some insight into this lifestyle milestone and offer some advice that can help make the transition easier.
FROM EARNING A PAY CHEQUE TO PAYING MYSELF
It can be difficult to wrap your head around this concept because for years you have been investing money in your portfolios and seeing them grow (or at least you should be!).
Now that you've made the decision to retire you must start withdrawing an income. A financial plan is vital at this stage so you can budget to cover all major expenses you are likely to encounter. You want to ensure that you don't overspend but you don't want to outlive your money either. Many people end up having much larger portfolios upon death than they had planned for, so create a plan and feel good about spending your hard-earned money in retirement!
IS DOWNSIZING MY HOME A GOOD IDEA?
Once you've retired and the children have long since left home, you may discover that your house is just too big for you. Depending on your age and health, tackling the stairs may become difficult or a large garden may be a nuisance to maintain if you are regularly away travelling.
If these are your motivations for downsizing, then it's a good idea. But some people think that if they sell they could add another lump sum to their portfolio; in my experience it is almost always a sideways move. By the time you've paid real estate commissions, legal fees, land transfer taxes and moving fees, not to mention renovation costs, you can be left with a lot less than you originally hoped for.
DO I HAVE TO CHANGE MY ASSET ALLOCATION NOW THAT I AM IN RETIREMENT?
Most investors believe they need to be more conservative and hold more bonds and GICs. In most situations, I don't really agree because many investors that are close to retirement are already in dividend-paying stocks and some fixed income. With the bond bubble we've seen over the past five years, I believe that investors need to have more exposure to stocks than bonds. Should markets change trend and move lower, your advisor should have a plan in place. They should be using stop losses and be prepared to move to cash because you definitely don't have the time to recover from a big loss if you are in retirement.
WHAT WILL I DO WITH ALL MY TIME?
Some people have so many plans for retirement such as travelling, golfing, volunteering or even taking care of grandchildren. On the other hand there are many people who have been so career-focused during their working years that they fear they will feel a bit lost when they stop working. Take the time to think about what you wanted to do all your life but just didn't have the time for . then relax and enjoy!
Lori Pinkowski is a portfolio manager and senior vice president, Private Client Group, at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. She can answer any questions at 604915-LORI or lori. pinkowski@ raymondjames. ca. You can also listen to her every Friday on CKNW at 5: 35 p.m.
