This month I had the pleasure of speaking with our in-house Certified Financial Planner Jin Lee to discuss some of the issues clients face with retirement. I will discuss some of the issues clients face with retirement planning and tips to prepare financially for retirement. Longevity means people can spend up to 40 years in retirement if they retire at age 60. So that makes retirement a big life event with many stages to plan for. Ask yourself, are you prepared for retirement?
What are some of the concerns people have when thinking about retirement?
For clients getting ready for retirement or even at the retirement stage, a big concern is, ‘do we have enough assets to last us for this 40yr period? Are there enough assets for the various events, and will we eventually exhaust these resources?’
Will the 4 percent Rule Account for my situation?
The second concern is the 4% rule which states that as long as you spend only 4% of your assets, you will not outlive your assets. The question is, does this rule still apply in the current market? Right now, the answer is vague and dependent on different situations and based on the different life stages in retirement. It is really about how your life & expenses flow in retirement and how you spend during each stage of life. The 4% rule is a little rigid and might not apply to some of our clients based on their life/ retirement dynamics. A financial plan will give you clarity on what your situation will look like based on specific life events instead of the generic 4% rule template.
What if I own a lot of real estate? Will it give me enough cash flow?
Another popular concern is the issue of being real estate rich with less cash flow, especially in a market like this. Some of the questions are if they will even be able to continue to manage these properties in retirement. As interest rates creep up, mortgages are now more expensive. Some people will see their property values decrease if they own real estate because interest rate risk affects home prices. Some clients are now looking to liquidate some of their real estate assets, so they have cash on hand to generate an income stream in retirement. It’s also important to diversify and not have all your eggs in one basket. Cash is also critical in this era as so many things can potentially come up that will require some money. If your funds are tied up in real estate, they may be hard to access. After interest and expenses associated with the property, you may not have enough income to pay for your retirement lifestyle.
How do most of my assets in RRSPs affect my personal tax rate in retirement?
Some of our clients have to worry about having a large RSP balance, which eventually means clients will have a forced minimum withdrawal balance from their investments. It’s ok to have a large or small RSP balance. Still, the issue is the more extensive the portfolio, the more the taxes and they potentially lose their old age security benefit if their overall income is above $79,000. The solution is to plan ahead. Have your assets structured so that you won’t pay more taxes than you need to, especially if you do not need to use the entire minimum RRIF payments. As financial planners, we can create cashflow projection plans to get the RRIF payments during your earlier years to give you more time to pay off those taxes over a more extended period of time. We will help you figure out where your income streams will come from. Are they taxable or tax efficient so you can have a good picture of your tax and lifestyle income throughout your retirement life stages.
Have a plan that ensures you can live the retirement you want no matter what the market does. Ask Team Jackie Porter
Many people had big plans for retirement and were hit with the current market downturn, which means a lot of spending plans are affected. When clients come to us with this type of issue, we recommend the cash wedge strategy, where they can put 2 years of lifestyle expenses in a high-interest savings account to fund their retirement. They don’t have to tap into their retirement accounts at the wrong time.
A financially secure retirement is possible if you plan and strategize based on your situation and potential life stages.
Team Jackie Porter offers a 30mins free consultation for people who need help planning their finances. Reach out to us at email@example.com