It seems that more and more these days the topic of retirement is coming up. Likely has something to do with my age ;). Weekly an article pops up in the news or my inbox and a client talks about their retirement plan, or lack of.
I participate in several retirement planning workshops throughout the year and I’ve noticed there are many myths around planning your retirement and retirement itself. And an abundance of conflicting advice. I’d like to share the most common ones I encounter in an effort to help you navigate your retirement path.
How much you need depends greatly on your past and your future. If you are carrying a mortgage or debt into retirement, for example, more funds will be needed to pay that debt versus the funds requirement if your home, car and credit cards are paid off. Additionally, your lifestyle plans at retirement will determine your needs. Are you a homebody who plans to stay close to home and enjoy your property or community, or are you more of a jet-setter with plans to travel and explore the nation/world?
An article posted earlier this year in the Globe & Mail suggests that you “throw all the rules out the window” when it comes to retirement planning. Article: Want to retire at age 65
Solution: Track your expenses today to have a complete understanding of what you need to live your current lifestyle. Consider your goals in retirement and adjust each line item to reflect your anticipated spending in retirement (don’t forget inflation), and create a realistic picture of what you will need. Then add 5-10% to account for the under-estimation we all tend to do 🙂
I find this one interesting because I know people who live comfortably with only their government pension income but I know plenty more who do not even survive on it. It’s really a matter of lifestyle. My Mother lives just fine without a private pension, but her generation is a rarity these days. They live beneath their means or at their means but not above it. She always did. Credit was not used to live on and the mortgage for their modest home was paid years ago. Unfortunately that is not how our generation, or the next generations live. We spend more on everything, and we have more to spend it on. For example, Mum does not have a car payment, internet or cell phone. She simply doesn’t need them. Never had them before so why start now. I suspect in retirement I will have at least two of those expenses. Mum also has 8 children, most living close by, who give her everything she needs and more. Families these days are a lot smaller and children are spread out across the country or the world, so, not only is there less family support in retirement years there may be an increased cost to visit your children or grandchildren.
Solution: Estimate your retirement income from government sources and any private pension accounts you have. Put those numbers in your projected retirement needs (as discussed above) to give a more accurate picture of your future needs and resources.
The Canadian Government’s Website offers this calculator to do an in-depth calculation on your needs. When in doubt, however, talk to your investment adviser.
Yeah. Ok. Let’s go with that! … for some that may be true but for others, the extra time and love of shopping may prove to have the opposite effect. Trips to the US to bargain shop, for example, can be a fun but expensive excursion. But let’s assume that is true, often times in retirement age the things you need cost much more. Let’s take shoes for example. Those poor tired feet of yours may not like the Payless version of shoes anymore. If orthotics are recommended you are looking at paying hundreds of dollars for a good pair of foot-worthy shoes versus the inexpensive ones you bought in your pre-retirement years.
Solution: Expect that you will spend at least as much as you do now for clothing, etc. While you may decrease what you spend in some categories, you will undoubtedly spend more in others.
Myth busting to be continued: watch for next month’s article as we continue to explore retirement myths…
Happy, healthy finances
Mary Ann Marriott
aka Dr Debt