Ep # 83 - 7 Actions to Take in the 5 Years Leading Up to Retirement
We discuss seven key actions to take in the five years leading up to retirement. We want you to outline your retirement goals and cash flow requirements. Get clear on your current financial standing and bridge any gaps well in advance.
We look at the importance of creating a shared vision for retirement, understanding future income sources, optimizing taxes, and conducting a cash flow audit to eliminate unnecessary subscriptions. We also stress the importance of maximizing employer benefits and gradually shifting towards a retirement-appropriate investment portfolio to ensure a smooth transition into retirement.
What You’ll Learn in Today’s Episode
Get Clear on Retirement Goals and Cash Flow Requirements: Understand your financial needs in retirement and bridge gaps in income well in advance.
Take Care of Big Ticket Items Before Retirement: Address major expenses, such as home repairs or vehicle purchases, while still earning a regular income to avoid financial surprises in retirement.
Create a Shared Vision for Retirement: Develop a vision for retirement activities and lifestyle, ensuring alignment with your partner's preferences to avoid potential conflicts.
Understand Future Income Sources and Optimize Taxes: Analyze potential sources of retirement income, such as pensions or investments, and implement strategies to minimize taxes and maximize income.
Gradually Shift Towards a Retirement-Appropriate Investment Portfolio: Adjust investment strategies as retirement approaches, gradually transitioning to a portfolio that aligns with retirement income needs and risk tolerance.
Ideas Worth Sharing
"We want to avoid any surprises once we get to retirement... If you can tackle those big ticket items when you have a regular cash flow coming in from your work, and if you can do it out of that cash flow without having to borrow, that's going to be the optimal way to avoid surprises in retirement.”
”You want to make sure you're not leaving free money on the table. Take advantage of those options where you can get someone else to help fund your investments.”
"Once you have some clarity around what your retirement looks like and what are the most important factors to you, you can take that next step and now start building out that retirement plan and start making some shifts or putting in place retirement strategies.”
"Start planning now, and you'll set yourself up for a much smoother transition into retirement. If you need help along the way, don't hesitate to reach out to a financial advisor or planner who can guide you through the process."
Resources
Retirement Navigator by Your Retirement Planning Simplified
7 Must-Do Money Moves 5 Years Before Retirement
If you're planning to retire within the next 5 years, it's time to set yourself up for success. Though it may seem early, the half-decade leading up to your retirement date is critical for tying up loose ends and optimizing your situation. Where do you start?
These 7 actions can help you retirement-proof your plans during this homestretch.
First, get clear on your retirement spending goals and income needs. Do you know how much monthly income your retirement lifestyle will require? An early step is analyzing anticipated spending categories like housing, healthcare, travel, etc. and calculating the gap between this and your current savings/income sources. Understanding this shortfall 5 years out gives adequate time to increase contributions or pivot plans if the math doesn't add up.
Secondly, aim to tackle significant home repairs, renovations or vehicle purchases while still earning a steady pay cheque. Replacing an aging roof or furnace can involve major unexpected costs. Making these investments while working helps avoid surprises later when income becomes less predictable.
Thirdly, you'll also want to create a shared vision for daily life in retirement. Defining intended activities, relationships and purpose will help shape your plans. Align with your partner on priorities like travel, hobbies, volunteering, etc. This vision can clarify lifestyle costs and refine your financial targets.
It’s also important to understand and optimize future income streams. For instance, maximizing Canada Pension Plan payments often involves delaying when you begin receiving them. Contributing to a spousal RRSP can facilitate pension splitting to reduce taxes.
Another useful exercise is an audit of ongoing spending commitments like subscriptions that can drain monthly cash flow. Cancel unused services and reallocate those savings to retirement investments. Treat this as a "raise" on what you can set aside.
Keep in mind taking full advantage of employer-matching contributions in workplace savings plans. Also, consider deeply discounted stock purchase programs if offered.
Finally, begin shifting your investment portfolio toward your target retirement mix. In the 5 years before stopping work, reduce volatility risk in your holdings. This prevents short-term swings from derailing the income stability needed once withdrawals kick-off.
The years immediately preceding retirement present a prime opportunity to optimize, align plans and shore up savings. Treat this homestretch as a valuable window rather than waiting until the last minute! Taking these 7 key actions now can help set you up for financial security in the next exciting phase of life.
Timestamped summary of this episode:
00:00:00 - Introduction to Retirement Planning Simplified
Joe Curry and Lindsay Wilson introduce the topic of retirement planning for the five years leading up to retirement. They discuss the importance of understanding retirement goals and cash flow requirements.
00:00:42 - Getting Clear on Retirement Goals and Cash Flow
Joe and Lindsay emphasize the importance of understanding cash flow needs and the gap between current savings and retirement goals. They stress the need to start thinking about investment strategies and potential changes in spending as retirement approaches.
00:02:03 - Taking Care of Big Ticket Items Before Retirement
Joe and Lindsay discuss the importance of addressing major expenses, such as home renovations or vehicle purchases, while still working. They advise against leaving surprises for retirement and recommend using regular cash flow to take care of these expenses.
00:04:24 - Creating a Vision for Retirement
Joe and Lindsay highlight the significance of developing a vision for retirement, including shared visions for couples. They stress the importance of planning for hobbies, social engagement, and overall purpose in retirement to avoid a lack of direction.
00:05:22 - Understanding Future Income Sources and Maximizing Income for Retirement
Joe and Lindsay discuss the importance of understanding future income sources and optimizing them to minimize taxes in retirement. They provide examples of strategies for maximizing income, such as utilizing spousal RRSPs and delaying CPP.