Ep # 62 - Mistakes you Might be Making in Retirement Planning, Pt 1
Joe and Lindsay dive deep into the critical retirement risks that many individuals overlook in retirement planning. From underestimating retirement expenses to the perils of retiring too early, we offer practical advice and solutions to help listeners navigate a successful retirement journey.
With a focus on informed decision-making and comprehensive planning, we emphasize the importance of having a clear financial plan, considering tax implications, and avoiding common mistakes like relying solely on a pension or making rash investment choices.
Whether you're on the brink of retirement or simply interested in optimizing your financial future, we offer valuable wisdom to ensure you're well-prepared for this exciting transition.
What You’ll Learn in Today’s Episode
Underestimating Retirement Expenses: Many individuals tend to overlook larger one-time or variable expenses in retirement, focusing primarily on their fixed monthly costs. This can lead to financial surprises as retirement often brings more opportunities to spend money, such as travel or renovations.
Clear Financial Planning: A comprehensive financial plan involves budgeting or understanding your current spending patterns, optimizing income sources (including government benefits, pensions, and savings accounts), and minimizing tax liabilities. Additionally, estate planning should be part of this plan to ensure your family's financial well-being.
Delaying CPP and OAS: While there's a desire to take the Canadian Pension Plan (CPP) early, delaying CPP and Old Age Security (OAS) can lead to significant advantages, particularly if you anticipate a longer lifespan. Being intentional about when you claim these benefits is crucial.
Considering Tax Implications: Retirement income can be sourced from various accounts, each with different tax treatment. Careful planning should focus on optimizing income sources and minimizing taxes. Registered Retirement Income Funds (RRIFs), Tax-Free Savings Accounts (TFSAs), and other accounts need to be strategically managed to achieve tax efficiency.
Regularly Updating Estate Planning: Estate planning should not be a one-time event. It's vital to regularly review and update your will and related documents, including powers of attorney for property and health. Changes in laws, family circumstances, and executor choices can impact the effectiveness of your estate plan. Regular updates ensure your wishes are carried out effectively and efficiently.
Ideas Worth Sharing
· "Planning is important because most people, a lot of people anyway, take their CPP early because they feel like I've been giving money to the government for my whole life and I just want to get it back."
· "Where you're taking your income from, that income is treated differently. It's essential to have a plan in place and consider where we're taking this income from."
· "Because if something sounds too good to be true, it probably is. We don't want to jump out of the tried and true ways of investing."
· "Educate yourself, know what you need to plan for, and understand that just running a projection that tells you how much retirement income you can get is not a retirement plan."
Resources in Today’s Episode
Retirement Planning Simplified
“Less than 1% of Canadians choose to delay CPP. Here’s why the rest are missing out” – FP Canada
Ep # 2 – YRPS – The Taxation of Retirement Income
Ep # 18 – YRPS – Canada Pension Plan and Old Age Security Timing
Ep # 6 – YRPS – Retirement Risk # 1 – Sequence of Returns and Why the Game Changes in Retirement
Ep # 7 – YRPS – Retirement Risk # 2 – Longevity
Ep # 8 – YRPS – Retirement Risk # 3 – The Risk of Being Too Conservative
Ep # 9 – YRPS – Retirement Risk # 4 – Inflation Risk
Ep # 29 – YRPS – Executor Help with David Edey
Ep # 10 – YRPS - Retirement Risk # 5 – Healthcare Expenses
Ep # 13 - YRPS – Safe Withdrawal Rates and Traditional Retirement Projections
Ep # 14 – YRPS – Dynamic Withdrawal Strategies
Don't Underestimate Retirement Expenses: Avoiding Common Mistakes
Do you want to ensure a secure and comfortable retirement? Are you looking for a solution to accurately estimate and plan for your retirement expenses?
There are many challenges people face in understanding the dynamics of finances post-retirement. It isn’t just about the fixed monthly expenses, but also the one-offs and lifestyle enhancements that often get overlooked. Joe encourages retirees to think of retirement like “every day is a 'Saturday” - and that comes with more opportunities to spend.
In this episode, you will be able to:
Appreciate the significance of underestimating retirement expenses and the security offered by a detailed financial blueprint.
Realize why we need to plan for unexpected healthcare expenses in your retirement days.
Consider the issues around taking CPP and OAS benefits too soon and the gains from delaying them.
Learn why you should consider tax aspects and optimal income arrangements while planning your retirement.
Explore the risks of relying on a pension exclusively and the principle of having diverse sources of income.
The Importance of Diversification in Wealth Building
Investment diversification is a valuable tool for wealth building. By spreading your assets across various investments, you can protect yourself from significant losses and leverage different growth opportunities. Balancing between aggressive and conservative investments requires an understanding of the markets and your risk tolerance. However, you can adopt a strategic defensive approach to safeguard retirement income from market downturns. At the same time, you need to strike a balance and not strictly hold to overly conservative investments. Diversification can help maintain the purchasing power of retirement funds and ward off inflation.
Not Having a Clear Financial Plan
A financial plan is like a roadmap for your retirement journey. It lays out where you're heading, the routes to get there, and the resources you will need. Creating such a plan will involve analyzing your current spending habits, projecting your retirement expenses, and planning your retirement income. This comprehensive approach helps to give you control over your financial future and peace of mind. You can look at optimizing income and reducing taxes through strategic planning. You can also account for various income sources such as savings, benefits, pensions, and tax-free savings accounts.
The resources mentioned in this episode are:
Visit our website and contact us to dive deeper into any of the retirement risks discussed in this episode.
Download our guide to the top five retirement risks for more information.
Start creating a clear financial plan for your retirement, including a budget or cash flow analysis.
Consider the potential health care costs in retirement and plan accordingly.
Consult with a financial planner to determine the optimal time to claim CPP and OAS benefits.
Take tax implications into account when deciding where to draw retirement income from.
Diversify your income sources and avoid relying solely on a pension for retirement.
Balance your investment portfolio by considering risk, return, time horizon, and comfort level.
Avoid making overly risky investments or assuming low-risk investments are completely safe.
Consult with a financial planner to evaluate and optimize your retirement strategy.
Discover how to mitigate the risks of underestimating retirement expenses and gain the confidence you need to create a clear and effective financial plan.