Retirement checklist

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   By Guest Blogger Ryan Lewenza

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Retirement is a big deal! We work our butts off for decades, socking money away every year so that we can build up enough savings to fund our retirement years. How much do we need, what taxes will we pay in retirement and what happens with my estate when I’m gone? These are common questions we get from clients in or approaching retirement and it requires a lot of analysis and planning to ensure clients get it right. Today I provide a ‘checklist’ of key aspects that need to be considered and worked out to ensure a successful and rewarding retirement.

First up is you need a financial plan that maps out your retirement spending needs and the portfolio cash flows that will help fund the retirement expenses. This is absolutely critical as you need to see the detailed numbers so you can better visualize your retirement picture, mapping out the years ahead and how it’s all going to be funded. Plus I find this exercise greatly helps people in making the decision of when to actually pull the trigger and retire.

Our certified financial planners work with our clients in building out these retirement plans and they focus on things like:

* Estimating your annual expenses in retirement. Our planners go through a detailed spending list to help clients determine their annual spending amount. As a general rule you’ll need 70-80% of pre-retirement annual income to fund your retirement. There are three stages of retirement – early, middle and later stages – which has different implications on spending patterns. The goal of the plan is to map out these different spending patterns over time (e.g., higher initial spending as retirees travel more).

• Forecasting returns and cash flows from the investment portfolio. This includes determining the annual income from the portfolio, making conservative forecasts for market growth (we use 3% to be on the conservative side) and future long-term inflation levels (we continue to use 2%). Using these estimates we can develop the projected growth rates from the portfolio, which then goes into calculating how much the portfolio can safely provide in annual income without running out over the client’s life. We then compare this analysis to the estimated expenses to make sure they line up. If not, then we would look at making adjustments like cutting back on spending or increasing savings ahead of retirement.
• In determining retirement cash flows we incorporate personal and government pensions, annuities and other income sources. For some clients we include a scenario where they sell their home and re-invest the proceeds to help fund their rent and other retirement expenses.
• Finally we overlay taxes in the analysis, as our planners strive to minimize taxes while maximizing government pensions.

Second, you need to figure out what you’re going to do with your government pensions like CPP and OAS. For CPP the focus is on when to start receiving it. You can start receiving the CPP between the ages of 60 to 70 with the standard age of 65. Readers of this blog know Garth’s preference is for taking CPP benefits early (age 60) as he prefers the ‘bird in the hand’ approach and if the government is going to give you money, then take it.

Third, you should review your health care situation to ensure you’re covered for anything that may arise. While we have a pretty good public health care system it will not cover everything so some may need to consider supplemental health care coverage. According to a survey from Global News, they found that respondents expect to pay $5,391 in out-of-pocket expenses annually after the age of 65. The focus of any supplemental plan should be on covering drug costs, potentially expensive dental costs and travel insurance.

Fourth, you need to make sure your financial affairs are taken care of in case the unforeseen happens. This includes ensuring your will and POAs are up to date and you have the correct beneficiaries on all your different accounts. The will ensures that your estate is distributed according to your wishes and the POA is there in case you become incapacitated. You should also ensure your family members or executor(s) have copies of these critical documents and have the names of the institutions and account numbers. Basically have your ‘ducks in a row’ just in case something happens as poorly planned estates can leave behind a mess for your family members and beneficiaries.

Finally, while the focus of retirement is usually around finances, there’s another important aspect and that’s the emotional side of making this huge transition. Assuming you work eight hours a day for 30 years you’re clocking in over 11,000 working hours! For many people (me included), work can define who we are, giving us purpose and a sense of self. So not only do retirees need to figure out how to fill up all those new free hours, they also have to come terms with retirement and the loss of identify, boredom and loneliness that can arise in retirement.

To address this, retirees need to be proactive and open to new things and adventures. This includes things like taking on new hobbies, staying physically active, traveling, spending time with friends and family and doing charitable work. Money and financial freedom won’t matter much if you’re not actively working on the emotional side of retirement.

Retirement can be an amazing new chapter in one’s life but there’s a lot of work and planning that needs to be done to ensure a successful retirement, so hopefully today’s blog provided a few good tips on how to get there.

Ryan Lewenza, CFA, CMT is a Partner and Portfolio Manager with Turner Investments, and a Senior Vice President, Private Client Group, of Raymond James Ltd.