Managing Your Money

Retirement: and the “gap” that you may not realize exists

Most people think of a retirement plan as “How much do I need to save for retirement”. But it can be much more than that if properly done. Whether you are working or retired, a retirement plan will give most people a sense of empowerment over their financial future. Getting clarity about where you stand financially – either good or bad – puts you in a position to make more informed choices. Of course, a retirement plan can tell you if you’re on track for retirement, or if you will outlive your money, but it can also tell you if there could be a “gap” that you’re not even aware of.

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To get the skeleton of a retirement plan, we start with a few main inputs – how much money are you starting with, what is your capacity to save, when will you need the money, how much will your lifestyle cost in retirement, and what is your expected longevity. Then we start getting deeper, and consider things like children’s or grandchildren’s education, major purchases, etc.  This will give us the basic framework to start with, and show us if there are any obvious gaps. What I call a “gap” is when the money you have, or expect to have, is not enough to cover what you want to have, usually in terms of income. Identifying this “gap” leads to options.  And the earlier this “gap” is identified the more options you have.

Take Adrianna’s situation.  She’s a 53 year old pharmaceutical rep.  She has a good income, and with it, a good lifestyle.  She enjoys travelling and is a regular at many of Montreal’s fine restaurants. She likes her lifestyle, and wants to maintain it during retirement. Unfortunately for Adrianna, when we did her retirement plan, there was a big GAP! Between what she has, what she’s saving, when she plans to retire, and how much her desired retirement lifestyle is going to cost, she is falling very short of her goal.  Since she doesn’t plan to retire until age 60, she has a few options.  She could save significantly more, delay her retirement to age 68, or downgrade her lifestyle expectations, quite a bit!  The amazing thing is, if she had identified this gap only ten years earlier, she would have been able to achieve her retirement goal with only minor adjustments to her situation. Time is SO valuable when it comes to financial planning!

Up until now, we have been talking about basic retirement planning.  In my opinion, the real value of a retirement plan lays in our ability to consider unlimited “what if” situations.  Once we have the basic structure of a plan, we can try any number of different scenarios, before they actually happen in real life.  What if I sell my house? What if I incorporate my business or practice? What if I sell my business? What if my investments do badly? What if I get sick, divorced, or die prematurely?  Whether it be voluntary decisions you may want to consider, or involuntary events that could happen, evaluating the impacts of these “what if” scenarios can give you a glimpse into your financial future, and potentially give you peace of mind.

When Nancy first came to see me, she was more interested in me managing her investment portfolio.  She had been referred by a friend who was a long-time client, because she wanted a second opinion on her investments. When I suggested we do a retirement plan, Nancy couldn’t see the point.  She was 72, and comfortably retired. But when we started to discuss her concerns, it became clear that her biggest worry was being able to afford medical assistance should something happen to her.  She is a widow, and her children live in another province. She had seen it happen with an older friend, who became disabled after a stroke, and chose to have a caregiver come into her home to provide assistance.  Nancy’s biggest concern was to be able to have choices, should she end up in a similar situation.  When we did her retirement plan, it was clear that she had plenty of money to live a very comfortable retirement….as long as there were no “bumps along the road”. In looking at the “what if” scenarios if she needed care, either she would be limited in her choices, or she would run out of money too early.  While this was already a big concern to Nancy, now it became an even bigger worry after seeing the numbers.  To alleviate her anxiety, and give her piece of mind, Nancy chose to implement a long term care insurance plan that would cover the portion of medical costs that her retirement savings could not.  This gave her security and peace of mind knowing that no matter what happened, she would be okay financially.

A retirement plan can address concerns before they happen, give you a sense of empowerment over your future, and provide you with options to make the most out of your financial life.  Keep in mind that a retirement plan is not static. It follows the dynamics of your life, and should therefore be a regular part of the conversation with your financial advisor.

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Lynn MacNeil, F.PL. Vice President, Investment Advisor, is a Financial Planner with Richardson GMP Limited in Montreal, with over 20 years of experience working with retirees and pre-retirees. For a private financial consultation, or more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at 514.981.5795 or [email protected].

The opinions expressed in this article are the opinions of Lynn MacNeil and readers should not assume they reflect the opinions or recommendations of Richardson GMP Ltd. or its affiliates. The comments contained herein are general in nature and are not intended to be, nor should be construed to be, legal or tax advice to any particular individual. Accordingly, individuals should consult their own legal or tax advisors for advice with respect to the tax consequences to them, having regard to their own particular circumstances. Richardson GMP Limited, Member Canadian Investor Protection Fund.

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