Managing Your Money

We all have a vision of the ideal “retirement”. For some, that even means working for years after retirement is possible. And that’s why I use the term “retirement” loosely. Not everyone sees themselves stopping working, but the majority of people do hope to achieve financial independence one day. Financial independence being defined as having enough personal wealth (including pensions, rental income, etc.) to support your lifestyle, without actively working. And it is financial independence that makes retirement a choice.

Achieving financial independence however, does not liberate most people from having financial worries. The worries or anxieties simply shift. They can range from worrying about outliving savings, to not wanting to encroach on capital, to losing money on investments, to fears about illness.

While not all fears can be quelled, many worries can be eased with good planning. You may have some degree of control over your health by eating well and taking care of yourself, but illness, mental or physical, is always a possibility. Ensuring that you have the proper documents, such as a mandate in anticipation of incapacity, is one step to alleviating worries. What is just as important is ensuring that you have full trust and confidence in the person or persons whom you are naming as your mandatary (person who is being given the responsibility to make decisions on your behalf). I have sadly had cases where parents just don’t trust their children fully, but name them as mandatary because they feel an obligation or see no other options.  This will provoke further anxiety about money, and what will happen if you lose control. There are always other options than to name someone who you don’t fully trust, including hiring a professional to oversee the duties.

Worrying about outliving your money, not having enough, or leaving an inheritance can be issues that brew on the back burner throughout retirement. Generally a great deal of these stresses can be reduced by having a detailed financial plan that includes conservative retirement projections.  It always amazes me when people come to me for a second opinion with projections that have been done for them at a 10% return! If you want to ease retirement concerns, assumptions for tax rates, inflation, investment returns, etc. should be extremely conservative.  I don’t want to sound unoptimistic, but I’d rather underestimate assumptions than overestimate them.  I once had a gentleman in his mid-70s referred to me by his friend.  He had retired at 62 with a good amount of savings and a projection from his then advisor showing him that he could pull out enough money from his investments to keep up with his current lifestyle.  The problem became clear in his mid-70s that something was wrong.  He was burning through his savings faster than they could keep up.  This was a few years after the 2008 market correction, through which he had very little “safe” investments to protect his portfolio. A number of major factors contributed to this “retirement failure”. Firstly, the projections done by his initial advisor were overly aggressive, and didn’t account for “what if” situations, like bad markets in this case. Secondly, the bad market that wasn’t considered, actually happened! And thirdly, this man never got a second opinion on his plan and portfolio until it was too late! Sadly, this meant that he had to make some serious adjustments to his plan, including reducing the projected amount he wanted to leave to his children.

The last worry that I’ll address here is the fear of losing money on investments. Risk means different things to different people. Communicating what risk means from one person to another is not always easy, and this includes between investment advisor and client as well.  If you tell your investment advisor that you don’t want investments that are “too risky” and the conversation ends there, you’ve got a problem! Does “too risky” mean that the investment can’t go down at all or that it can’t go down a little, does it mean that you don’t want to risk losing purchasing power, or does it mean that you don’t want to take a chance of losing all your money? An experienced investment advisor will dig deep enough to understand what you mean by risk, and therefore you shouldn’t have ongoing anxiety about your investments.

If you do worry about the safety of your investments and whether or not your advisor understands YOUR meaning of risk, discuss it, or get a second opinion on your investments from an advisor who you feel does “get” your concerns. Many advisors also use tools such as Investment Profile Questionnaires to ensure they understand your risk tolerance level. If you have any concerns about the assumptions made in your financial plan or projections, discuss them, and understand why those assumptions were used.

Have the numbers re-run with more conservative assumptions to be extra sure your financial future is on track. Ask that a Monte Carlo simulation be run. This is a complex process that looks at many different outcomes of a situation, and predicts the probability of those different outcomes occurring. Or basically, tells you what the likelihood is of your plan or retirement being a success. It’s just one more way to reduce those lingering worries that may lie at the back of your mind. When you finally retire, you want to be able to relax.

Special Note: I host presentations regularly on different topics. Please visit my website or contact us directly for more info on upcoming topics and presentations.

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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