There is a simple and unsettling reality in Canada. Most Canadians are not financially prepared for retirement.
Some are completely unprepared. According to a CIBC poll from last year, 32% of Canadians between 45 and 64 years old have nothing saved for retirement. Additionally, another 53% polled say they didn’t actually know how much they would need to save for retirement and therefore didn’t know whether or not they were on track.
This is where a Certified Financial Planner can step in and help answer one of the biggest questions, “do I have enough to retire?” In particular, they can help to answer the following questions:
Gauging monthly retirement income needs
Estimating government benefits at a planned retirement age
Thinking about moving or downsizing
Determining expenses in retirement
It is relatively unsurprising to learn people who are most confident about retiring have spoken with a professional financial advisor about retirement planning.
While working with financial advisors may improve retirement outcomes, saving is critical for anyone who wants to retire from working full-time. In fact, the majority of workers and retirees participating in a recent Wells Fargosurvey wish they had begun saving for retirement sooner than they did.1
Factoring in the healthcare variable
No matter when individuals begin to save or how much they’re setting aside, even sound retirement plans can be disrupted by rising healthcare costs and catastrophic illness. There is evidence that Canadians are concerned about healthcare issues. However, few have factored healthcare expenses into their retirement plans.
According to the Canadian Institute for Health Information (CIHI), only about 70% of healthcare costs are covered by the public system and therefore other costs should be factored into your financial plan for items including prescriptions among others.
Moving toward a comfortable retirement
If thinking about retirement makes you a bit queasy, it’s likely you haven’t prepared as well as you should. The good news is developing and implementing a retirement plan is straightforward. Here are a few steps that can help boost retirement confidence:
Create a retirement budget. A retirement budget is no different than a current household budget. Write down (item by item, line by line) how much you expect to spend in retirement. Obviously, these estimates will become more accurate as retirement nears. Some planners will recommend you estimate a percentage of working income. In the absence of a detailed budget I prefer to use 100% of working income as the goal. In retirement you will have more time to do the things you have been planning for your whole life. In my experience, you will find more ways to spend money and not less.
Save for retirement.For many people, a successful retirement strategy means saving at least 15 percent of their income.2Those who have the good fortune to participate in an employer’s retirement plan may benefit from employer-matching contributions. If you don’t have a retirement plan at work, open an RRSP or TFSA and set-up automatic contributions each pay period.
Choose an asset allocation strategy. Asset allocation is dividing your savings among different investments, such as stocks, bonds, and other options. The way people invest their savings is often determined by their age, risk tolerance, and retirement goals.
Prepare for long-term care.Three-of-four retirees will need extended long-term care. If you haven’t planned for it, the cost can really put a dent in your retirement savings. There are public offerings which can help support you and private companies which can provide a more personal and customized experience. The benefit of planning ahead for these is that you will have options available when you need them.
Review your plan every year.Retirement planning is not a static activity. Retirement goals may change significantly over a lifetime. As a result, it’s important to review retirement plans often and make any changes needed.
Practice for Retirement. This is a very important step which is often overlooked. Most people are unable to make the difficult transition easily because they have become accustomed to going into work every week and their sense of purpose may be defined by the work they do. If you can, I would recommend you practice retirement before pulling the trigger completely. Take a few weeks off in a row and go away or practice doing the things you plan on doing in retirement. Be honest with yourself and see how much you enjoy it. If you find yourself getting bored, maybe it’s too soon. If you realize that it’s everything you had hoped, then you may be ready to make that mental shift.
Will you be able to retire comfortably? It’s a complicated question. The answer can be equally complicated. If you would like help figuring it out, or want to review your current plan, contact us today.
-Grant White, CIM, CFP®
Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.