RETIREMENT can be overwhelming for people if they don't have a plan.
As I specialize in retirement planning, I hear many common questions and concerns from Canadians nearing retirement or who are already retired.
The most common question is, "How much do I need for retirement?" This really depends on how much you spend. Some people may be more frugal than others, so it is important to begin evaluating your situation at least a year before your retirement date. I find people often overestimate the amount they may need, therefore it may be valuable to track how much you spend leading up to your retirement.
It is important to have a current financial plan completed, usually this is done at no cost. Your plan should include all of your assets, liabilities, pension, and incomes, as well as taking taxes and inflation into account to ensure you know the amount needed or are able to withdraw from your portfolio. Using conservative assumptions for returns and inflation will give you a better idea if you need to adjust your spending or saving, as you don't want to outlive your portfolio.
Many investors wonder how they will actually get the income they need from their portfolio. This will come in various forms such as dividends and interest. From my experience, I find that in the current environment, investors should expect about 5 per cent just in income from their portfolios without including any growth potential or dipping into principal. The portfolio needs to be set up in a way that an active strategy is in place to get defensive and raise cash if the market moves lower. If you are retired then you won't have time to make up a big loss in your portfolio. This is why it is important to make sure your advisor uses an exit strategy for your holdings, be they stocks or bonds, should markets turn negative.
Another common concern amongst retirees is estate planning. It's important to pass on your wealth to your beneficiaries with the lowest amount of tax possible. There are ways to properly set up your estate to reduce taxes and avoid probate fees. Should you want to protect your assets from a divorce in the family or make sure that the inheritance lasts a life time for a financially dependent family member, then you may want to set up a trust as well.
Lastly, the biggest concern, is having just one spouse manage all investments or being the point of contact for the financial advisor. If something happens to this spouse, then the spouse who doesn't follow the investments can feel very overwhelmed from this new duty. It can be especially hard if they are forced to make investment decisions when they haven't had a relationship with their financial advisor. It is important to have a strategy in place for this type of situation to ensure there is minimal decision making and the transition is easier for your spouse.
Lori Pinkowski is a portfolio manager and senior vice president, private client group, at Raymond James Ltd., a member Canadian Investor Protection Fund. She can answer any questions at 604915-LORI or lori.pinkowski@ raymondjames.ca.
