What is your plan for retirement? Enjoy the golf course? Travel? Spend time with the grand children? Keep on working, but purely for fun?
In our experience, there is an immense diversity in how our clients want to spend their retirement. But from a financial perspective, we've found most people are aiming to achieve one (or often more) of the following four goals. And before you focus on anything else, it is imperative you figure out what your goals are for retirement.
Which of these are your primary goal in retirement?
1. Avoid running out of money?
For many this is their number one goal - and their number one retirement fear. Being forced to turn to your children - or go back to work - during retirement is a source of anxiety for many current and future retirees.
Many folks think the key to achieving this goal is very low-volatility investments (e.g. Guaranteed Investment Certificates or GICs), but we will discuss this is not always the case.
The stress of inflation on low yield investments, lagging government pension plans and the simple fact that people are living longer all contribute to this fear.
If you want to be sure you don't outlive your money, it's time to crunch the numbers and determine the probability of your retirement success. You may need to speak to a Financial Planner if you are looking for a comprehensive solution.
Searching for a quick answer? Check out the 4% rule. This is a good starting point to determine the amount of pre-tax income that can be withdrawn "safely" from your retirement accounts.
2. Maintain or improve lifestyle?
Most people have worked hard for their retirement and want to enjoy it. As such, a common goal for many clients is to maintain - or better yet, improve - their lifestyle during retirement.
For many, the first 5 to 10 years are often the "prime time" to enjoy your retirement nest egg and your health. Travel, buy that new RV, spend to much money on the grand kids... you get the point.
Shifting back your retirement accounts, the key here is to maintain or grow purchasing power over time - this requires income growth to offset the malicious impact of inflation.
This need for growth during years of low interest rates highlight the need for a well balanced investment with proper asset allocation and diversification.
3. Increase wealth?
Some folks are easily able to enjoy the retirement lifestyle of their choosing with no fear of running out of money. For those fortunate individuals and families, the goal is often to grow their wealth over the long term - typically for legacy, whether that's children, grandchildren or charity.
Unsurprisingly, most people with this goal take a growth-orientated approach to their investments.
Further more, the importance of tax planning is the true difference maker in creating generational wealth. This includes optimizing tax on retirement accounts, creating an investment strategy in holding companies/trusts and creating a tax efficient estate plan.
Investments are a matter of opinion, Tax is a matter of fact.
4. Spend every cent?
This isn't a typical goal among our clients, but there are some people who think success is spending all of their money before they die.
But this is often a risky proposition - there is no way to know exactly how long your retirement will last, and people who attempt this may find themselves out of money sooner than they think.
If this is truly your goal, I would suggest that you tread lightly. Be sure to factor in how changes in your health could increase health care costs in the future.
Before you focus on anything else, figure out which of these goals are the most important to you. You can't figure out how to get there if you don't know where you are going.
If you are interested in learning more about getting retirement ready, be sure to check our Free Retiree Guide.
Written and published by Michael Isbister, IG Private Wealth Management as a general source of information only, believed to be accurate as of the date of publishing. Michael Isbister is a CERTIFIED FINANICAL PLANNER professional in Saskatchewan. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on up to date withholding rules and rates and on your specific circumstances. Trademarks, including IG Wealth Management and IG Private Wealth Management are owned by IGM Financial Inc. and licensed to its subsidiary corporations.