Financial Retirement Planning


Secrets to Retirement Planning

February 21st, 2011 ernie Posted in Retirement No Comments »

Secrets to Retirement PlanningEveryone wants to have a comfortable retirement. A healthy retirement and to be able to take advantage of the free time they now have.  Like pretty much everything else you can increase your chances of achieving these goals if you plan for retirement. The Secrets to Retirement Planning are pretty simple once you understand what they are. Plan financially, emotionally and look after your body as well. The fundamentals of meeting these goals is pretty straightforward:

  • Sufficient funds to do the things you have always wanted to do
  • Healthy bodies and minds
  • Interesting and challenging things to do

If you have these three things, chances are all of the details will work themselves out and you will have a wonderful retirement. Sure there will be challenges along the way, family issues to deal with and surprises that you could not predict. However if you have dealt with the retirement planning issues of money, health and interests, you should be able to weather these small storms.

Secrets to Retirement Planning

Let’s take a look at these three areas in more detail.

Sufficient Funds

The answer for everyone is of course different. You need to have sufficient funds in your retirement to meet you basic needs for a safe and healthy life. Beyond that is what you really need to enable you to meet the retirement goals you have.  Starting when you are younger and setting aside at least 10% of your salary every year in savings should get you to were you want to be when you are ready to retire.

Of course if you have lofty goals in mind , you will have to save more. Develop a plan based on your current lifestyle and spending habits. Calculate how much money you will need to save based on the year you will retire and the expected life span. Assume a conservative interest rate as well which will force you to save a bit more. With these basic tools you and plans you should find yourself in a good position come retirement.

Follow the basic rules of : diversify your investments, never put all of your investments in one basket, if it sounds too good to be true , then it probably is, and try not to chase speculative investments, invest for the long term.

Healthy Bodies and Minds

This is probably the easiest for many people. All you need to do is exercise the body as well as the mind to stay sharp and enable you to enjoy all of the things that life has to offer well into your old age. Too much of a good thing is also bad, so 3 days of exercise during the week for 30 minutes each time is probably sufficient for most people. Overdoing it, as in seven days a week marathon running for example is probably going to wear out your joints well before you normally would. Who wants to go through knee or hip operations with the associated immobility?

Swimming is an excellent low impact exercise and is great for sore knees and hips. Even if you are not a good swimmer, just getting out and being active in the pool is a great exercise. Consider some of the swim gym classes as well were you exercise in the water.

You also need to challenge the mind and keep it sharp. Working will help with this as long as your job requires some thought. Experts indicate that doing crossword puzzles, playing games, working on various projects will also help to keep the mind sharp. How about doing math to keep your mathematical skills high. You can impress the kids at the store by adding up your costs before they can punch it into the cash register. Did you ever notice that when the cash register is not working, most have no idea how to add!

Interesting and Challenging things to Do

If you catch yourself becoming a couch potato, you are probably headed in the wrong direction. One friend of mind, when asked what he was doing in retirement, he answered by saying he gets up in the morning, has his coffee, reads the paper and watches the grass grow! This is an indicator of someone who has no outside interests and is bored. Needless to say his friends were appalled. Fortunately for him, he was able to land some small contracts which will keep him going for a while, however he really needs to fine something interesting and challenging to occupy his time.

It really does not matter what it is. Go back to work, take up some hobbies, volunteer, travel, do something. The only important criteria is to make sure that you look forward to getting up in the morning to tackle what you have planned for the day. Of course if travel is on your list, you also need to be able to afford it as well.

Don’t wait start planning for your retirement when you are young and you will be sure to have a very successful enjoyable retirement lifestyle! Comments are welcome!

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Early Retirement Secrets

November 21st, 2010 ernie Posted in Retirement 1 Comment »

Early Retirement SecretsI read an article recently called early retirement secrets which gave the following short list of things to do if you wanted to make sure that you would be able to retire early. I looked at this list and thought that it was ok, but a little academic. Having gone through some of what they discussed and identified, I have my own thoughts about this subject and what you need to do to retire early. Every person will have a different experience so it is important to evaluate your own situation and make the decisions that are pertinent to your life style. First I would like to offer some comments about each of these points.

  • Visualize What Retirement will be like
  • Beat the Other Guy
  • Use Reminders and Checklists
  • Plan in Bite Size Chunks
  • Consider Annuities
  • Your Going to Have Some Losses
  • Protect Yourself – Do Not be Too Trusting

Visualize What Retirement will be like – It is impossible to visualize what retirement will be like, unless you have some role models to follow and you are in the same circumstances as these role models. Still you are a different person, so do your best at figuring out what you really want to do in retirement and be realistic about it as well. For example, you will probably want to travel, but you cannot travel all of the time. You have health issues to consider and grandchildren as well to think about. List all of the things that you might do in retirement, prioritize and also consider from a budget perspective.

Beat the Other Guy – Simply do not worry about what the other guy is doing, do what is going to provide you with a happy good quality lifestyle. Competing with the Jones (sorry, this is a really old expression) is just a losing situation. Focus on yourself and your family.

Use Reminders and Checklists – it is a good idea to follow up on your investments on a regular basis. You probably would do this as part of your job so why not do the same thing for your personal life.

Plan in Bite Size Chunks – planning in stages is also a good thing, especially if you are the type that cannot focus on the big picture. Set milestones, achieve those milestones and then set new ones which will take you to your final objective.

Consider Annuities – I am not a big fan of annuities. They are just a way for the insurance companies and banks to make more money off you.

Your Going to Have Some Losses – This is very true. During the recession many people lost huge amounts and then recovered these same amounts provided they well invested in good quality stocks, bonds and mutual funds. Non of this speculative stuff and well diversified.

Protect Yourself – Do Not be Too Trusting – Always get several opinions and if it sounds too good to be true then it probably is. Most people should have at least 2 financial advisers and they should ask the same questions of both to see what kind of answers they give.

All of the above are excellent points, however as I mentioned earlier a bit academic for a lot of people. The reason I say this is many people do not even know how to get started planning for their retirement and end up retiring without a clue about what they are going to do with their time or if they even have enough money to live on! So what should someone do on a practical basis to prepare for retirement? Here are a few ideas which if followed, will get you ready for retirement. They worked for me.

  • Save 10% of your salary every year
  • Develop multiple  hobbies that will carry into retirement
  • Work at a job you enjoy
  • Try semi Retirement first
  • Always have a Rainy Day Fund
  • Always take A Vacation
  • Exercise

Save 10% of your salary every year – Save it and do not touch this money regardless of your needs. Get used to living on 90% and invest this money conservatively with some diversity so that you can manage the ups and downs of the markets.
Develop multiple  hobbies that will carry into retirement – This is really to help you find a balance between work and personal life, as well as give you something to do when you finally do retire.  A neighbor of mine told me the other day that he gets up in the morning and watches the grass grow. He has no hobbies and I feel sorry for him.
Work at a job you enjoy – This is a must, because if you like the job, you will do a good job at it and excel. Less chance of being laid off and you will be much happier as well which leads to a healthy lifestyle.
Try semi Retirement First – For some people this is really too risky, however for others working part time or on full time short term contracts is the best of all worlds.  A short term contract gives you some extra money in addition to your retirement income, keeps your hand in the business, allows you to meet more people and challenges you as well which keeps the brain sharp. I like short term contracts since this allows us to travel and do some of the things a short vacation would not allow.
Always have a Rainy Day Fund – Let’s face it in today’s world, you’re going to lose your job someday when you least expect it. You may have a boss who does not like you, your company may get into financial trouble or you just fed up and quit. A rainy day fund, separate from your retirement fund, will tide you over until you find something else and take the pressure off as well.
Always take A Vacation – This appears to be a small thing, but it is important to always take that vacation. If nothing else you will learn what you need to do to keep yourself occupied when you retire. I know guys who cannot wait to get back to work after their vacation because they are bored.  This is the wrong approach. Use this time to train for retirement!

Exercise – both the body and the brain to stay fit and healthy.

Hope fully these tidbits will help someone. If you have comments, please leave them as long as they will help our readers.

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Balance Finances, Health and Wealth

November 7th, 2010 ernie Posted in Retirement No Comments »

Balance FinancesAs Canadians age, transition and live in retirement, taking control of their health and wealth is critical to ensuring success and quality of life in the later stages of life.  Many of us are trying to figure out what we want to do in the next stage of our live. Some of us are about to retire or have retired. Still others retired from their long term careers and are working on a part time basis or on a contract basis at various jobs. They call this semi-retirement, since they have not stopped working yet they have retired from their career jobs. This transition, regardless of what you chose to do or how you plan it needs to be thought out carefully, taking into account your family needs as well as your personal needs. This includes financial health, but also your physical health as well.

Balance Finances – Also Your Health

“There are three major aspects of your physical health that deteriorate with age – your strength, endurance and flexibility and let’s not forget your cognitive abilities as well. Declines in these areas can lead to loss of quality of life and disability that may to increase with aging. Many people can significantly slow down the decline in each of these factors by taking control of your lifestyle. So you have to pay attention to your finances to make sure you have enough to live on, but you also must pay attention to your overall health as well.

Many Canadians are allowing their physical capabilities to decline at a higher rate than what is attributable to the result of aging. Staying active, strengthens the heart, the lungs and the muscles and keeps strong blood flow to the brain. Even if you go for a brisk walk daily, this can make a huge difference in your cardio levels and extend you life by years.

Some age-associated changes are within one’s control, and can be slowed by staying active and making small lifestyle changes. An increase in physical activity at any age is known to reduce age dependent declines in fitness and can help prevent diseases that are normally associated with aging.  Diet is also important as well. Eating well, without over eating and maintaining the weight for your body type is important. Overweight people tend to age more quickly so maintaining proper weight levels, exercising regularly as well will help you maintain your health.

Balance Finances – Your Wealth as Well

Paying attention to your finances is equally important. The many demands of life can make it difficult to take full advantage of the power of saving and investing money over the long-term. While consumers  may be tempted to ignore the details and deal with retirement financial challenges as they arise, a successful retirement can be attained by taking a few simple steps to determine in advance if their financial capital is adequate. Do the same with your overall health as well and take steps to prolong your life.

The key to a successful retirement isn’t about setting a plan in motion; it’s about building a plan that is dynamic and holistic so as your life changes and your health changes, your financial plan evolves and preserves your money in a way that fits your lifestyle. Much like physical health, action must be taken to maintain strength, endurance, and flexibility in one’s financial health. It is the combination of control over one’s health and finances that leads to a balanced retirement.

Stay on track and build a plan today. Follow these simple steps to a successful retirement.

  • Write down your plan. Writing down your physical and financial goals helps you clarify them and gives you something to work towards.
  • Assess your progress. On a quarterly, semi-annual or annual basis, step back and see whether you have achieved the goals that you set for yourself.
  • Make modifications, as needed. A plan is flexible and can evolve as your needs change.

You are the only one who can really take control of your health and your financial plan. Talk to experts to help you fine tune your plan for exercise as well as to save sufficient money for your retirement. However do not follow advice blindly, make your own decisions and remember:

  • If it sounds too good to be true, it probably is
  • Never put all of your eggs in one basket, diversify

Please leave comments on your plans and how our readers can benefit from your ideas as well.

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Financial Needs of Baby Boomers

September 7th, 2010 ernie Posted in Retirement 2 Comments »

Financial Needs of Baby BoomersWhat are the financial needs of baby boomers? How does one go about figuring out if they have sufficient funds saved up for retirement? Perhaps if you have a pension which will last until you die, you will be ok financially. Add government pensions and many people with pensions will be find. They may not be able to do everything they want, but they will be able to live comfortably. Baby boomers have become accustom to having whatever they want and they have the money to make purchases that their parents never could.

Now they are going to retire on mass and many of them do not have company pensions to fall back on. They have to rely on their own savings, odd jobs and government pensions which do not pay a lot compared to the cost of living these days. With so many people retiring at the same time, all of the financial companies are developing products that are designed to help the baby boomers. But are they really helping them?

All of these companies are in the business to make money and they have high overhead and that means they need to make a lot of money off of you and I to be profitable. If you are planning to retire soon and have some money to invest, be very careful how you invest and who you invest with. These funds need to last some time. So lets break the problem down for people in general terms so that you can help yourself figure out what you need to do. You may have to go over your plan several times to make everything work for you, however that’s ok, you should do this at least once per year and any time there is a major change in your finances.

Financial Needs of Baby Boomers – When to Retire

Some times you just have had enough, sometimes it is health and other times people are forced into retirement.  Pick an age that you are comfortable with for your plan. If your actual retirement age changes, then re-evaluate the plan. You might choose 50 or you may work until you are 70 years of age or even longer. It does not matter as long as you can and you are enjoying the job. Start with the age that you think is most realistic for your situation.

What income will I Have After Retirement?

The next step is to figure out what your income will be when you retire. You will have a combination of company retirement plans, government pension plans and your savings. Look up these amounts or contact your HR people to find out what to expect. If you have savings, assume that you will receive 4% income from your savings. Don’t forget to project what your savings will be at retirement.  4% is a conservative number so anything higher than that is a bonus. Add up all of these income amounts and this will be your total income before taxes.

What do I make now?

Next calculate all of your income. Your last tax statement will be a good place to look. This will be your total income that you are currently making and is a good measure of what you need to make assuming you are living within your means. You will actually need a little bit less, since it is assumed that you are not saving for retirement now since you have actually retired.

Compare your Retirement Income with Your Current Salary

As a baby boomer this is were you may be in for a surprise. Most people will be shocked when they find out that they are receiving less than they thought for their retirement. Now is the time to take stock of your situation. Possibly you will want to adjust your retirement age so that you can build up a bit more savings and also earn income longer. If you have to retire then there are plans that need to be made to ensure that you can live comfortably.

How Long will I live?

This is another big question, since it really puts a limit on how much money I will need to have to live comfortably.  If baby boomers are an average 55 today, they can comfortably assume that they will live another 30 years. That is a long time to live on savings alone if there is no pension. For those folks with a pension they are better off, however inflation can catch up with them and make things difficult financially.

You can talk to an accountant to have someone do the calculation for you. However in simple terms if you have $300,000 saved up and you are going to live another 30 years, then that is only $10,000 a year plus interest that you can take out of your savings if you want your money to last well into your 80’s.  This can be very scary for a lot of baby boomers and it is time for a wake up call to take a look at what savings they need to have.

Hopefully if you are reading this post you will have gotten something out of it. If you do or would just like to leave a comment for our readers please feel free to do so. We would be glad to have them. Note that spam comments will be deleted.

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How Will You Make Your Money Last

July 21st, 2010 ernie Posted in Retirement 1 Comment »

How Will You Make Your Money LastHow will you make your money last as long as you live? That is a question that many people ask themselves who are contemplating retirement.  Some people are very fortunate and will have pensions from their employer that kick in when they retire and will be payable as long as they are alive. Unfortunately consumers who fall into this category are in a small minority. Most of us must rely on our savings,  possibly an old age pension and  Canada pension in Canada . The United States has similar social plans. What many people do not realize is that these pensions are not sufficient to live on and you must have savings or company pension to provide you with the proper level of income that you feel you may need. If you have not retired , you may still have time to save enough money to enhance your retirement.

Calculate Your Expected Income

In order to answer the question of how will you make your money last you need to know how long you need it to last.  There are many assumptions you can make and you can find information from various sources that will help you gather this information to calculate your income and also how long your savings will last.

The premise is to balance income with expenses during retirement for longer than your statistical expected life time.  Here is some of the information you will need.

– Planned retirement age

– Expected age at death, plus 5 years as a buffer ( base this estimate on your parents age when they passed away)

– Total savings at the time of retirement

– Total of all pension income at time of retirement ( obtain estimates from your company and government )

– Income you feel that you need to maintain the life style you wish to lead in retirement

– Total of all debt payments at the time of retirement

– You need to make assumptions about the average inflation rates as well as your income from your savings, usually in terms of a percent interest rate of income.

Calculate How Will You Make Your Money Last

There are several programs available that you can plug in these variables to help you calculate how long your money will last. Examples include Quickens Income Retirement Planner. This program and others like it will walk you through the exercise of entering the above information and even help you determine your expected life span.

The out put can be quite enlightening, providing you with information about how long your funds will last, based on your assumptions and then provides an opportunity to change various variables to perform sensitivity analysis.

If you first find that you are coming up short and will run out before your expected life span ends, adjust some of the assumptions to see what needs to change in terms of desired income, retirement age, amount of your savings, etc.  The next step is critical and can have a huge impact on your life.  As you adjust the variables, it is important to be realistic because if you are not, you may end up with a rude surprise later in life.

Sensitize Your Assumptions

By playing with the variables you may quickly see what you have to do to ensure that you have sufficient funds to last as long as you need. For example if you decided to retire at age 55 and find that you are coming up short in income in later years, adjust the retirement age and see what the impact is. Retirement age changes can be dramatic and can make a huge difference in your savings.  Another alternative is to retire at age 55 as planned, but then work part time to supplement your retirement income.

Inflation rates and interest income rates are another significant assumption that you will make. Small changes in inflation can really impact your outcome.

The point is if you play with the variables you will begin to understand what you need to do to endure that you can retire and life in the lifestyle that you would like. Unfortunately many people start this analysis a year or two before they retire and they then get a rude surprise. They experience a serious change in life style and cannot do some or many of the things they had planned during retirement.

Develop a Concrete Plan

Regardless of when you develop your plan, once you have gone through this process, develop a plan to meet your needs and achieve the goal your are aiming for. By calculating whether you have sufficient funds for retirement you can then take the steps needed to make sure you will be comfortable.

Develop your plan, follow the plan and re-evaluate your plan at least once per year.  Start early in your life and adjust the plan as life throws various curve balls at you. By following these simple steps you not only will know how you will make your money last, you will virtually guarantee your retirement objectives.

Comments are appreciated.

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How will you pay for that? Sources of retirement income

July 7th, 2010 ernie Posted in Retirement 1 Comment »

Sources of retirement incomeSources of retirement income determine just how much you will have when you retire. Yet half of Canadians expect pensions to be their largest source of retirement income, and yet many Canadians have no idea how much they will receive from the various pension sources that are available, including any pension that they might receive from their employment. How can a person plan financially for their retirement if they do not have any idea of what their Sources of retirement income will be when they retire? How do they know much they need to save to give them the life style they wish to have without having this basic level of information?

Many Canadians and Americans for that matter believe they will likely need to work well into their retirement years to give them the kind of lifestyle they wish to have.  Let’s look at the possible sources of income for a person aged 65 in Canada. Americans reading this post will be able to do their own assessment as well by looking at the pension sources they have in their country.

The common sources of retirement income at age 65 are:

Company Pension plan – the amount you receive will depend on how many years you have paid into the plan and how much you have paid. Early withdrawal prior to 65 will decrease the amount that you will collect from the company plan and also the type of plan the company offers.

Canada Pension plan – the amount you receive will depend on how many years you have paid into the plan and how much you have paid. Early withdrawal prior to 65 will decrease the amount that you will collect from the CPP

Old Age pension – this is a fixed amount which all Canadians will collect. However if your income from other sources is higher than a prescribed amount the government will claw back some or all of the OAS pension.

RRSP investments- you can contribute to an RRSP until age 69 and then you must convert the RRSP to a RFIFF and start withdrawing money from the plan. You can also withdraw at age 65 as well, however there will be less to withdraw.

Other Investments – these are investments you may have outside of your RRSP. These could consist of investment properties, mutual funds, as well as the family home.

Supplemental pension amounts if your income is below a certain level

Part time or full time work after 65 – many Canadians will supplement their income by continuing to work beyond 65. There is the added benefit that this work keeps them involved and active in the community, and challenges their minds with interesting work.

Canadians expect part-time or occasional work (26 per cent) and income from their own investments (24 per cent) to be supplementary sources of income during retirement. Thirty per cent of Canadians aged 35-54 expect to be working in retirement, suggesting the concept of a traditional retirement is disappearing.

Regardless of your current age, it is important to develop a budget based on the expected income from various sources. This is really the first step to assess if you will have sufficient funds at retirement. It may take some digging to find the estimates for each pension source; however it will be worth it to assist in planning your retirement. Your HR person can assist you with the company pension plan estimates and the government web sites will help with the CPP and OAS pensions. Of course all numbers will be based on the assumption that you work until 65 to maximize your pension income. Usually if you retire early, the pensions will be decreased by some amount to reflect less time for your pension contributions.

Once you have these numbers a financial advisor can assist you with estimating the amount of money you will need to save to provide the lifestyle you are looking for. Your savings plan will be based on this amount needed to generate the amount of money you will need at retirement. You will need to make assumptions about inflation and the percentage of income you will generate based on your investment profile and risk tolerance. Invest conservatively and diversely to protect your retirement savings

Having enough money for a comfortable retirement (68 per cent) is the most important consideration in deciding when to retire. However, half of Canadians (53 per cent) who have established financial goals feel they are somewhat short or nowhere close to where they think they should be to ensure a comfortable retirement, up from 36 per cent in 2007.

The amount of money saved that a person will need at retirement is a very personal number. It depends on the amount of pension income as well as on personal goals, plans and expectations for retirement. On average, retirees have a goal of nearly $270,000 as the amount of money required for a comfortable retirement, down from nearly $450,000 in 2007. People not yet retired think they will need nearly two and half times that amount, or almost $660,000, down from almost $900,000 in 2007.

Clearly the recent economic turmoil during 2008 and 2009 has had an especially sobering effect on consumer’s savings objectives. The fluctuation of the investments during this time has scared many people and caused them to rethink their retirement plans. Fortunately if you are invested in conservative solid investments, they are generally returning to the pre-downturn numbers that we were used to.

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Ten Years to Retirement-Are you Ready

June 7th, 2010 ernie Posted in Retirement No Comments »

Ten Years to Retirement-Are you ReadyTen years to Retirement – are you ready: Most people do not think about this aspect of retirement. They just know that they want to retire and they cannot wait until they walk out the door from the office. However it is always a good idea to plan your retirement in all aspects. Planning 10 years in advance seems like a long time ahead of time, however with a 10 year window you may still have time to fine tune and make adjustments to your financial plan to get ready for your retirement.

This assumes of course you do not wait until 10 years before retirement to suddenly start saving for retirement. All of us should save for retirement starting with our first job and then when we get close to retirement,. We just need to find tune things to be ready for our leisure years. Saving from when you start work means that you have money working for you and increasing your retirement nest egg for a much longer period of time . If you only begin 10 years before retirement you will have to save relatively large amounts of money.

Ten Years to Retirement-Are you Ready: Meet With Your Financial Planner Now

If you do not have a financial planner, it might be a good idea to find one and ask them for help in evaluating whether you are ready for retirement or not. Financial planners will provide this service  as a free service with the understanding that you will give them some business and either transfer your investments to them or begin investing with them. They get paid through commissions on any investments you may make through them.

We strongly believe on diversification, not only of your investments across mutual funds, stocks and bonds, but also across investment advisers. Never place all of your investments, especially your retirement funds, in one investment or with one investment adviser. There just has been too many stories of seniors being ripped off by people and/or the investments not doing well. You just have to recall Enron or the market crash of 2009 to know what the potential impact is. Ten Years to Retirement-Are you Ready?

Financial Planning Tools

Most good financial planners will have various tools available that can be used to develop a profile for you. They can also develop a  cash flow for you well into your retirement years based on your income, current savings, planned retirement date and expected life span. In addition you and the financial planner will make assumptions about the level of inflation and the amount of income you should expect for your investments. Most will error on the safe side of the assumption to provide you with a conservative estimate.

A combination of graphs and reports should be expected and you should be able to quickly see whether you have sufficient savings and retirement pension income to assess your financial health in retirement years.

It is never too soon to do one of these plans, however 10 years in advance of retirement is a good time to take stalk of your financial health.

Make Adjustments and Get Ready for Retirement

Doing a financial health assessment 10 years in advance of retirement provides you with sufficient time to make adjustments and get ready for retirement. As we said before this assumes you already have savings and are not starting at the beginning.

For example you might find that you need to work an extra year or so to achieve your financial objectives, or you may find that by increasing your savings rate, you can actually retire earlier than you thought from a financial perspective. Of course there are many other issues to take into account other than finances. Focus on these separately to make sure you are ready for retirement.

With this assessment you will have a clear picture of what you need to do to get ready. However you are not done yet. Be prepared to re-evaluate your financial plan every year and also after any major change in your life. You may find that no changes in your approach is necessary. On the other hand if inflation is high, interest rates change significantly etc, you may need to make adjustments to your plan. This is all good and part of every day normal planning for your financial adviser. In fact he or she should be encouraging you to review your plans every year.

Retirement Earlier Than Planned

Some of us are forced into retirement earlier than planned for a variety of reasons. For some it is health issues, for others it is the economy and our companies needs to down size. What ever the reason, you need to be prepared financially for this kind of thing. Although it is not fair or nice, it is reality and the only person who will look after you is yourself.

If you are faced with this situation, some belt tightening is probably in order. You should quickly re-assess your plan, then decide what you need to do re getting a job or developing additional income if it is needed.

A word of caution. In these situations some of us tend to take more risk and go after higher income investments to make up for losses in income. This is dangerous especially when you are so close to retirement. Something is better than nothing which is what could happen to your investment nest egg if you invest in the wrong thing. Discuss this strategy carefully with your adviser and ask for more than one opinion. You should have spread your investment across several adviser, so use then to gather various opinions.

Comments on this blog are welcome and encouraged. Ten Years to Retirement-Are you Ready?

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What Life Stage are you in Financially

May 21st, 2010 ernie Posted in Retirement 1 Comment »

What Life Stage are you in FinanciallyDo you know what life stage you are in financially? Many of us do not and before we know it we are walking out the door to retirement if we are lucky or getting laid off if we are unlucky.  Each life stage has different requirements financially and with good planning you can prepare for each stage and come out ahead of the game so that when you are finally ready for retirement, you have sufficient funds for your retirement. The chart at the left depicts one writers view of various life stages. Most people will find that they fit into this chart at some point. You need to ask yourself where you are and are you meeting the requirements at this life stage.

What Life Stage are you in Financially

Pre-marriage, pre-home, pre-kids – in other words your single with no commitments and probably starting your first job. Marriage, a new home and kids – lots of expense and your single largest purchase is during this stage. Your home will be the largest investment and your kids will represent the largest expense. These can be difficult years with never enough money to go around for all the things that are needed and that you would like to provide for your family.

Pre-retirement- kids are at university, you have a couple of weddings to pay for and retirement is only a few years away. Expenses are still high due to university costs and of course the weddings, however your house is paid off and you have more funds available to save and also pay your expenses.

Retired – the first few years includes making that adjustment to not working or perhaps working part-time to fill the days. Many people will travel, the house is paid off, you take up golf or other sports. It is an active time and you can also enjoy the grand children.

Late Retirement – Time to slow down. There are a few illnesses to deal with, some friends are no longer around, you have the grand kids and you are spending more money on medical issues.

Financial Requirements for Each stage

It is a complex life with lots of demands for money as different events unfold and require money to pay for them. New cars, clothing, housing, vacation, weddings, travel, repairs and it never seems to stop.

On top of that there are always speed bumps along the way that jeopardize your quality of life. It might be a job change, being out of work for a while or even a medical emergency. Whatever they are, they can be dealt with proper planning and savings plans.

If you are handy with a spread sheet and so inclined you can develop a financial model that will help you decide how much you need to save for every area and life stage of your life. Most people are not and need a much more simpler approach that has common sense and easy to implement.

Common Sense Approach to Your Life Stages – Financially

Following a few simple rules will ensure that you have sufficient funds for all of your needs. Putting them into action and sticking to them is much more difficult. It takes discipline and perseverance, but the end result will ensure that you have the quality of life that matches your income level.

Here they are :

  • Live within your salary and stick to your budget
  • Set aside 10% of your income for retirement
  • Save an emergency fund that is equivalent to one years salary
  • Start early , on your first paycheck saving for retirement
  • Invest in quality investments, avoid junk stocks and bonds
  • Diversify, never put everything into one investment
  • If sounds too good to be true, then it probably is
  • Constantly monitor your savings plan and budget
  • Adjust your expenses as needed to avoid generating additional debt
  • Pension plus savings should meet 90% of your pre-retirement income
  • Adjust your savings plan if you fall behind – market adjustments, inflation etc.

Discussion About Life Issues

Many people get in over their heads as the last two years have demonstrated with all of the foreclosures and bankruptcies. Consumers losing their jobs and also taking on too much debt is a really bad combination that came together at the same time.

This is really the essence of the first rule or guideline. Never take on more debt than what you can afford and make sure you have sufficient emergency savings for at least a year, not counting your retirement savings. In other words live within your means. Sure we have all heard of many people getting rich on lucky speculation in real estate or the stock market and yes this does happen. However for the majority of consumers the slow steady approach is the best approach, because for every one that gets lucky on an investment, there are a 100 who do not.

The next two guidelines are also very important. Saving for retirement. The earlier you start the easier it gets and the more fund you will have for retirement. Near term emergencies will always happen throughout your life.  They will vary by family, but rest assured they will occur and having a savings account equivalent to at least one years salary could mean the difference between financial ruin and time to find another job or recover from a serious illness.

It is difficult to meet these savings guidelines, however you will be very thankful if you take the time and the discipline to meet these guidelines if a serious disruption in your life occurs.

We will be discussing these issues and others in this blog later this year. Let us know if you have comments or other ideas about how to deal with life’s curve balls.

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Getting Ready for Retirement

May 7th, 2010 ernie Posted in Retirement 2 Comments »

Getting Ready for RetirementGetting Ready for Retirement is such a big topic and there are so many different issues that people need to consider before they retire that it can seem over whelming for many people. Everyone is different of course and has many needs as well as things they would like to have or be able to do. Unfortunately we cannot have it all and need to make many compromises.  The number and kind of compromise really depends on two major factors. The first is your health, because if your health is not good, then it really does not matter how much money you have. Of course the 2nd factor is sufficient money to do the things that you would like to do.

Both health and money can be controlled to a certain extent by yourself, although sometimes outside issues get in the way, however for most people it is really up to you how you spend your retirement and depends on the decisions that you make in younger years. I recently saw an 82 year old women riding an electric bike on the bike trails in Palm Springs. If she can do this, then there is lots of hope for the rest of us!

We will discuss a lot of issues in this post, some of which will apply, while others will not have any impact on you. Just skip over those that do not interest you or do not apply to your situation. We guarantee that there is something for everyone in this post, so read on and enjoy. Here is the list of topics that we are covering. Feel free to add others by leaving a comment at the end of this post.

Getting Ready for Retirement – Health

  • Exercise
  • Eating Healthy
  • Dealing with Health Issues
  • You Need Friends in Retirement
  • What will I do In Retirement

Getting Ready for Retirement – Investing

  • Common investment mistakes
  • investment diversification
  • 10 % Investment plan
  • retirement planning
  • Tax Efficient RRSP Investing
  • Variable vs fixed interest rates
  • Consolidation investments
  • Ten Financial Rules to Follow
  • How much do you need to retire
  • Life after 65
  • Balanced Budget – Stress Test Your Budget
  • Long-Term Financial Planning Key To Lasting Relationships
  • How will you pay for that? Sources of retirement income
  • Interest Rates Going up
  • What Life Stage are you in Financially
  • How will you make your money last
  • 10 Years to Retirement are you ready
  • When Should You Retire

Getting Ready for Retirement – Health

Exercise

No Matter what age you are at, exercise is part of staying healthy and living well into retirement. Exercise will always help to burn off those extra calories and it will also help to regulate the heart, the lungs and all of your muscles. You will feel good about yourself and be able to enjoy that much more of life.

There are some of us that believe you have to run marathons and climb mountains to stay healthy. In reality you just have to get out there and walk at a fast pace for at least 30 minutes 3 times per week. This is the minimum really and if you can do more, great. If you have trouble doing even this amount, then start smaller and work up to it. Even a 10 minute walk a couple of times a week will help and as you build up stamina, you will be able to go further and further.

Take walks in your neighborhood, chat with the neighbors and get to know your area. Go for walks in some of the parks in your area and other places that interest you. Let’s face it it gets pretty boring if you go to the same place every day for a walk. None of us can really stand that. Plan some of your walks with a friend and plan to go new places. This will bring more interest and challenge to you as well as your friends that you invite a long.

Remember to always bring water with you and always tell someone were you are going and when you will be back. They can keep an eye out for you and come looking for you, should you run into some difficulty. Walking can be fun and you see so much more of the outdoors with the fresh air.

Walking is only part of staying healthy. This brings us to our next topic and that is eating healthy food.

Eating Healthy

Eating healthy is so important and there are many aspects to it which can make it very complicated for a lot of people. Often they will just give up and indulge themselves in the foods that they really enjoy. There are all kinds of diet plans out there, some work and some don’t. However the bottom line is that no diet plan will work regardless of how good it is , until you have made the commitment to yourself that you are going to lose weight and do what needs to be done.

Without this commitment, there is really no hope of losing weight and keeping it off. Sure, all of us can lose weight for a while, but them we just fall back to our old habits and on the pounds go again. Change your lifestyle and make the commitment to yourself that you are going to lose weight and keep it off. Combine it with a great exercise plan and you will lose weight, be more healthy and feel great.

A sensible plan without all of the complications means managing your portion size and then burning off some of those calories. You might exercise like crazy and still gain weight because you are eating far more than you should.

Decrease your portions, use a smaller plate, split meals with a friend when you go out and drink more water. If you have just eaten, and want to eat something additional, wait 10 or 15 minutes and your stomach will tell you that you are full and does not need more. Avoid desert or at least make the size much smaller.

If you live in America, you probably already know that the American restaurants serve large food portions. It is way too much for most people, yet they seem to find away to cram all of that food into their stomachs. For years now my wife and I have been splitting meals. Not only do we decrease the calories we eat which is the objective, it has the side benefit of saving us money at the same time. Most restaurants do not object to this practice.

Watch your portions and if you have to snack, check the calories to avoid eating more than you should. Eat some vegetables, or other low calorie snacks to pacify that craving that all of us get from time to time.

Remember that you want to strive for a negative energy balance i.e. Energy in the form of food  less energy expended in terms of daily activity and exercise should be a negative number if you are trying to lose weight.

Dealing with Health Issues

Staying healthy is a full time business for all of us and sometimes we just cannot avoid dealing with some health issue that creeps up on us. We have talked about exercising and eating properly. As we get older we have more and more of these health issues to deal with and eventually they will prevent us from being able to travel, golf or whatever we like to do in retirement.

Each person has their own goals for retirement, however after having talked to many people who have worked as long as they could, taken retirement and then found within one or two years that their retirement is severely limited due to health issues. Sometimes it is bad knees or bad hips, while in other cases it is a stroke or heart attack.

Our recommendation is to enjoy every day and make the most of every day. Do not put off your retirement just to make a few extra dollars unless you absolutely have to .

You Need Friends in Retirement

When you retire, you suddenly are not going into the office any longer. You do not get to see your friends and colleagues at work,  some of which you might have worked with for many years. Your days can be much more limited in terms of people you see and deal with. All of this can bring on a sense of loneliness and even a fall in terms of self worth. Many people will go back to work either part time or full time just to regain that social part of their life that they are now missing.

A solution to this issue is to focus on building and maintaining friends well before you retire.  These are friends that you will carry into retirement and people you will spend time with once you retire. Whether it is playing cards, playing golf, various sports , traveling together all of these activities can be shared with your friends. The point is to find activities that you and your friends can enjoy together  both before and after retirement.

People with friends, lots of friends, are often much happier about themselves and enjoy life much more. It takes work, it takes staying in touch with people, it takes helping people and much more. It is all worth it and will help you both in retirement as well as pre-retirement. Really this is something we should all do regardless of what age we might be.

A word of caution! Don’t mistake the collegial activities that go on at work for friends .  Some may be carried over from work to retirement, however many of these activities are part of the networking that we all do to maintain good relationships at work and to help us find new jobs etc. We should all continue to participate in the sports activities and activities at work, however what we are saying is that sometimes these relationships do not carry over to retirement since networking with a retired person does not help much with ones career inside the company that you are no longer part of.

Those people will quickly drop off your radar screen since they are focused on their jobs and careers and have not realized that they should also be focusing on maintaining friendships throughout life.

What will I do In Retirement

Retirement can be a big issue for anyone who has not done some planning or at least taken the time to think about what they will do with themselves once they retire. Now you have from 8 to 10 hours every day to fill that work filled before you retired. In addition you had something to talk about when you came home at night and had dinner with the family.

Now with all of this extra time on your hands, what will you do with your time? The worst thing you can do is begin tailing your spouse and trying to manage your spouse. You may find that you have a mutiny on your hands.

Developing a plan, hobbies, and things to do will help immensely with your enjoyment of your retired years. Not everyone has hobbies or the money to follow some of these things.  Not everyone wants to follow hobbies and realistically you cannot work on your hobbies all of the time. One of the things that many people have found is that they need to have many things to do that interest them and fill their days.

Planning your days the way you would at work with every hour planned is not the way to go either. Fill your days with both planned activities as well as spontaneous activities as well. In order to do this you need to retain your flexibility and willingness to take advantage of things as they occur, which means something else may get delayed. Before you know it you will wonder were the time is going. Personally we are at the stage  were we take 3 month holidays. Not only are our holidays filled , they are not long enough! For example, I am writing this post over several days, because there are just too many other things that I need to get done in the mean time.

We have talked about some of the non money issues and we also need to discuss some of the money issues as well. Let’s face it, if you do not have sufficient money to do some of the things you want to do, then retirement might be frustrating for you or you need to work longer than you had planned. Focus on planning financially for retirement as early as possible. You will have a much better chance of attaining your goals if you start early.

Investing for Retirement

There are many issues to think about when it comes to retirement and one of the most important is that of money. If you do not have enough, or have to live on a very tight budget, retirement life may not be what you thought it was going to be. Living with the children, or living in an area with low rent is not everyone’s idea of retirement life. Fortunately everyone with a little bit of financial planning and starting early when you first begin working can make a huge difference in your welfare.

We will cover a number of areas that may be of interest. If they do not apply then move onto the next. Comments are welcome.

Common Investment Mistakes

If you are investing your savings over a lifetime, chances are that you will make a few mistakes along the way. You may purchase a stock that declines and you lose your money, or the hot mutual fund does not climb the way you thought. Maybe the fees were much higher than discussed. There are a host of areas that many people will not consider as they invest their hard earned money and save for retirement. There are a few mistakes that can have a really major impact on your retirement plans. These you have to avoid!

All of Your Eggs in One Basket => Always Diversify

If you place all of your investments in one investment you are taking a huge risk. If that investment goes south, you could lose all of your savings. We just have to recall Enron and Nortel. Both companies were flying high and both companies are worthless today and yes, some people lost their life savings. Always follow a balanced diversified investment plan.

A balanced diversified plan will include investment in bonds, mutual funds and stocks and cash. It will include investments across most major sectors of the economy and most investments should not form a major part of the overall total. This approach should protect you from major hits on your retirement plan.

Using Only One Financial Adviser=> Use several Advisers

The majority of investment advisers are legit and will provide you with great advice, however there have been a few that basically walked away with all of the money their clients had.  If it does not sound right or you are uncomfortable with a particular investment ask for a 2nd opinion.

Even if you have great confidence in your adviser, it is still a great idea to have a 2nd opinion. Investing is a complex business in a complex market. It is impossible for anyone to know everything, so ask around and get other opinions. Get involved and study the investment decisions prior to placing your money in any investment.

High Risk Investments = > A balanced portfolio

Some investors will place all of their investment in high risk investments hoping to make a huge return on these investments.  You should never place everything or even a high percentage in high risk. A balanced portfolio as discussed earlier is always the best route.

When you are young you can afford to take these chances, since time is on your side and you can recover from major losses, however as we get older, High risk investments should form a lower part of your investment especially if you need the income. Most people will shift to income oriented investments as they get older.

Over Confidence = > Always question all of your decisions

This is one of the biggest mistakes we all make and it impacts everything we do. Investing is a complex business and it is always a good idea to talk to other experts and seek varied opinions. If some one disagrees with your approach, always get to the root of the disagreement and examine your own reasons for the approach you are taking.

At the end of the day, you are the one to lose money, not your advisers and not your friends. Over confidence can caused you to follow a stock all the way to the bottom without even knowing it until it is too late.

Following the Herd => Make your own informed decisions

There is definitely a herd tendency to investing and it is difficult to step out of line when everyone else seems to be doing what the herd is doing.We only have to look at the stock markets over the past few years to see the effects of this herd mentality.

Still if you are able to make your own serious decisions and not be too greedy, you can get in when stocks are low and out when they are high, well before the herd figures out what to do.  Many members sell when stocks have dropped and buy when they are high, which is exactly the wrong thing to do!

Timing Your Selection = > Invest for the long term

We would all like to time our investments perfectly to capture the lows and sell high. Unfortunately most of us are just not that astute and do not have the tools available to us to make this happen.It is incredibly difficult to time it just right either for the highs or the lows.

What the good investors do is to invest in excellent quality stocks and invest for the long term, taking in dividends as well as gains in the market. If a company does not do well and appears in trouble, your monitoring of the investment should capture this and allow you to get out in time.

Control of Your Investments = > Manage your portfolio

We all know that you cannot just watch your garden grow. You need to add fertilizer and remove the weeds from time to time and then make sure it gets watered at regular intervals.

Your investments are like your garden. In order to have a healthy investment portfolio, you need to monitor your investments, make adjustments from time to time when the balanced portfolio gets out of line and you need to make strategic choices when there are significant market changes taking place. Work with your adviser, but never relinquish control to anyone but yourself. Retain the control over the investments, how they are managed and how they are reinvested as they mature.

Paying too much in Fee’s

We all feel that we pay too much in fee’s, however there are some you just cannot get away from, while others are negotiable. If you are managing your own portfolio, use a discount brokerage house to do your trades. However if you are working through a financial adviser, the only way he gets paid is when you place trades through him or her.

You received the advice for free, so now you have to pay. However you can split your portfolio and minimize the fees as a result with some under your discount broker and some under your financial adviser. When purchasing mutual funds, ask for an explanation of the fee’s, how they are paid and when. There are huge differences among mutual funds!

Investment Diversification

We have touched on investment diversification earlier in this post. The basic message is to avoid placing all of your nest egg with one adviser and in one stock or mutual fund. Good advisers will work with you to determine your risk tolerance and your objectives. There are a series of questions that they will take you through to help you make these decisions.

Once you have an idea of what kind of investor you are, he will recommend a series of stocks and mutual funds for you to invest in that should be spread across several market segments as well as domestic and international markets. They should also match your risk tolerance profile. If you cannot sleep at night because you are worried about your investments, then you are probably invested with too much risk for your profile.

With proper diversification, when one market segment is down, others are pulling their weight and maintaining your overall portfolio value. If you are invested in good quality stocks, they will recover even in the face of the kind of downturn we experienced in 2008 and 2009! It takes constant monitoring and lots of care to make sure that your investments will be there when you retire.

10 % Investment Plan

This is something I have taught my kids from when they were young enough to start getting an allowance. Take 10% of whatever you make, save it, lock it away, invest it wisely and watch it grow. Once you start this savings plan, and get used to not having your 10%, pretty soon it will just be part of your normal everyday life.

If you start early, and do not touch your savings until you are ready for retirement, you will have a nice little nest egg to enjoy. In fact it may be a large nest egg depending on how long you have been saving and the types of investments you have chosen.

For those of you who also have a retirement plan, this savings plan is really icing on the cake which will allow you to do pretty much everything you want when you retire. If you do not have a retirement plan, you will still need to set money aside in retirement plans.

There is a huge temptation to borrow from these savings plans as yo ugo through life. A new car, a new roof on the house, a larger mortgage are just some of the things that come up and make you think that it might be a good idea to borrow from the 10% savings plan.

Try to resist. You will find a way to pay for these things. Do not jeopardize your retirement. It is very hard to save your money and so easy to spend it.

Retirement Planning

Many people wait until a few years before they retire before planning for their retirement. While it is ridiculous to try to tell a 30 year old to plan his retirement when they are focus on climbing the corporate ladder and trying to raise a family, there are a few things that can be done early and will help in the long run.

For example, start your 10% savings plan, invest in RRSP’s or 401k’s, review your companies pension plans and most important have an investment plan that makes you independent of the many curve balls that life throws at you. Layoffs, being fired, companies going into bankruptcy, health issues are just a few of the things we all need to plan for and have a back up plan regarding how we will support ourselves as well as our families.

As you get closer to retirement, you can get more detailed. Were do you want to live, should you down size,  vacation homes, places to travel and other activities too numerous to mention. Consider all of the personal things that are important to you and begin planning how you will approach them in retirement. You do not have to make decisions until you are ready, but at least you have thought about them.

Work with your investment adviser or develop your own spreadsheet to estimate your income level once you retire. This will help with your decision as to when to retire and how much money you will need to live the kind of life you want to live once you hang up the shingle.

Tax Efficient RRSP Investing

Being tax efficient about your investing is important because it can make a huge difference about the amount of money the government refunds to you or collects from you.

Most people will want to invest in their RRSP’s or 401k’s when their income are at their highest level so that they reduce their taxes by the maximum amount. Once you retire, your income will be reduced and most people will find themselves in a lower tax bracket. This is the time to begin cashing in your plans at a lower tax rate and overall you pay less taxes to the government.

If you have trouble understanding this, don’t worry about it. Just invest in RRSP’s while you make your maximum amount of money and don’t cash them in until you retire. Talk to your accountant to review the details. Many bank managers can also assist you in this area as well.

Variable vs Fixed Interest Rates

Another area that we would like to cover are interest rates that you pay on loans, mortgages and even credit cards. These are all loans with various payment terms and interest rates that can vary a lot. The simplest one and the most expensive are credit cards.

Credit cards start around 16% and can go all the way up to 28%. They are the most expensive loans you can use to carry a balance on. The interest rate does not change that much, so you could say that it is fixed, however it is one of the most expensive in the market. Always pay the balance on time to avoid these high exorbitant rates.

Consolidation of Your Investments

This seems contrary to our recommendations that you should diversify your investments. However some of us will over do it and have far too many different investments that make it impossible to manage and keep track of.

We like to stick to keeping the maximum value of each investment to no more than 5% of the overall total. If all of your investments match this level then you would have 20 funds or stocks in your portfolio. As funds or stocks grow, you will need to sell some to bring them back to the 5% level and re-invest the proceeds into other areas.

If on the other hand your limits were set at 1%, you would have 100 different investments and at this point it gets difficult to manage and monitor. You are investing for the long term, however it pays to monitor your investments and make adjustments from time to time.

Most people will find their own comfort range, and land somewhere between 20 to 50 funds or stocks.  More than that, you probably need to consolidate!

Ten Financial Rules to Follow

The following comments reflect 10 rules that we think just about everyone should follow:

Take control of your finances – don’t ignore your bills and credit cards, take control of them and develop a plan to achieve your objectives. Once in place you will feel much better and empowered!

Pay down your  debt – This is the best way to save money. Pay down your debt and save huge amounts of interest that you would otherwise pay with after tax dollars.

Spend less – or put another way, live within your means. Set a budget, make sure you set 10 % aside for your savings and retirement and stay inside your budget to prevent going further into debt.

Save more – the more you save the better off you will be in retirement or in a situation were you are laid off and need to have some savings to get you through a layoff while you look for another job. This is your safety cushion.

Develop a personal investment policy statement – This is really a statement of your plans related to your finances.  How much you will save, how much you will borrow and how quickly you will deal with existing debt. Set objectives and develop tactics about how you will achieve your objectives.

Re-balance – re-balance debt to minimize your payments and interest payments. Pay off credit card debt which carries the highest interest rates and consolidate loans such that your payments meet your ability to pay and minimize your interest payable.

Get tax efficient – Invest in tax efficient savings plans, particularly when you are paying the most in income tax. You can reduce the amount of taxes you pay to the government by investing in tax savings plans.

Get insured – if you have a family, it is particularly important to make sure you have life insurance as well as disability insurance. Disability to cover you if you can no longer work and life insurance to provide for your family if you are not around to provide for them.

Don’t give up – Sometimes times get tough and you just have to pick yourself up and keep going. There are many stories about people going bankrupt several times only to make it really big. If you happen to lose a lot of money, learn from your mistake, move on and start again, and don’t make the same mistake twice.

Review, adjust and enjoy- don’t sit back, stay involved and continuously monitor your investments and make the required adjustments as needed. Overall enjoy your life, we only get to live this life once.

The following statements really do not need any additional comments. They are self explanatory!

Diversify, never put all of your hard earned money in one stock etc or even with one investment adviser.

If it is too good to be true, then it probably is not true.

Take control of your investments and learn what you need to know to make informed decisions.

How Much Do You Need to Retire

The question that everyone wants answered! Unfortunately there is no easy answer to this question because everyone’s situation is different. Some people will still have debt, while others will have a full pension. Some will still have kids in university, while others will have multiple families they need to consider in their financial planning.

With so many variations, the approach that you may want to consider is to look at your current income and expenses. Make sure you have a really good idea of what these are since many people do not even know what their expenses are now, let alone when they retire. This is your starting point.

Next review all of these numbers and estimate how they will change on the day you retire, including both income as well as expenses. There are several good tools available such as Quicken to help you prepare this analysis. Take into account all pension income from your company as well as any you might get from your government.

Now that you have an estimate for the year you retire , continue with this same approach for the five years following retirement. Be prepared to make adjustments each years as expenses and revenue change. Once you know if you have sufficient money for your retirement, you will be able to decide if you need to make any changes to balance your income with your expenses. If you come up short i.e. you are spending more than you take in, you may have to consider cutting back on your expenses or work a bit longer.

Life After 65

Some people like to continue working after they turn 65. They like the social part of it and the extra money is nice as well. Others cannot wait until they are finished working. I guess they really did not have a good experience with work or they have many other things to do in their lives. But life after 65 is not the end. There are the grand children, the nieces and nephews to visit and look after. Some will travel and others will do volunteer work and help the community in many different ways.

In fact the number 65 is not what it used to be. Many people are retiring at 50, 55 , 60 and some are working well into their 70’s. For some people work is what the love and the people they work with . Take the time to figure out what is best for you and what you find satisfying. Figure out what makes you happy and follow this guide to fully enjoy your life after you retire from your job or jobs.

Balanced Budget – Stress Test Your Budget

We have talked a lot about budgets and planning your retirement, figuring out what your income will be as well as your expenses during retirement. Getting to this stage is very important and you have made a great step forward if you have developed a financial plan for when you retire.

For those of you who want to be really sure that you can withstand all that life throws at you from a financial perspective, doing a stress test on your financial plan is an excellent way to build in additional safety and protection for you and your family.

Start by decreasing your income after retirement by 10%, leaving your expenses as  they are. What is the impact? Do you still have sufficient funds or do you need to tighten your belt and cut back on your expenses? With this simple test you can quickly determine how exposed you are if your income declines for some reason.

Next, increase your expenses across the board by 10%. this is the same as saying that there is going to be rampant inflation of 10% or more. What is the impact? Do you have sufficient funds to cover these higher expenses? or do you need to cut back on something? Depending on the severity you may even have to go back to work or delay your retirement by a year or two to give you that additional safety margin you need.

Complete these stress tests every year and adjust as required.

Long-Term Financial Planning Key To Lasting Relationships

In many families one spouse or the other will look after the financial planning aspects for the family.  In most cases one or the other takes and interest and will follow up on all of the financial issues that need to be dealt with.

In reality the more involved both parties are in the planning and understanding the plan as well as the quality of life that they will have during retirement the better their overall relationship will be. If one is worried that the other has not planned sufficiently to deliver a good quality of life or is in the dark about what to expect in retirement, then relationships tend to suffer.

Some of the best relationships are built on trust and full disclosure of all family elements. However this means that both have to get involved. Both have to meet with financial advisers. Both have to jointly participate in decisions about investment strategy and investment decisions regarding specific stocks and mutual funds.

There are so may benefits to making joint decisions. If you recall how decisions are made in the business environment, there are reviews and discussion and often a joint or group decision is arrived at. Although this takes more time and work, the benefit is that better decisions are usually made. The same is true of financial planning. If you and your spouse are jointly involved, debating your plans etc, then chances are better decisions will be made.

How Will You Pay for That? Sources of Retirement Income

I have heard many people talk about the trips they are going to go on, the cottage they are going to buy or the downsized home that they will purchase. Some will purchase new cars and other new toys as a kind of congratulatory gift to themselves for making it to retirement.

Many of these same people have no idea of what their income will be and how they will pay for some of the things that they are considering. The point of this section is asking people to stop and consider your expenditures before making that leap. Make careful and studied decisions before you make that leap.

Once you retire, you have a fixed income that may increase slightly, but definitely does not keep up with inflation. So the money for  anything you purchase has to come from your savings or you pay each month on a monthly payment loan basis.

Interest Rates Going Up

As of April 2010, the Canadian Goverment has announced that the bank rate will likely increase in June. the US government may increase their bank rate by the end of the year if the US economy recovers sufficiently by that time. Australia already has increased their bank rate and other European countries are announcing their intentions to do the same.

If you are an investor with investments in CD and bonds, you will be happy about this turn of events since your income can be expected to rise. If you are borrowing money for a loan or a mortgage,  you are going to pay more for your loan and that means that your retirement nest egg may not go as far if you still have a mortgage for example on your home.

Now is the time to lock in interest rates before the go up to high and cost you much more money in interest payments. If you are an investor you may need to wait a little bit longer, however better returns should be expected in the latter half of 2010 and into 2011.

As you plan your retirement , do stress tests and make adjustments each year, take into account these changing interest rates and the impact that they may have on your financial plans as well as your retirement. Interet rates can play a significant impact, especially if they go up drastically. For those of you who recall the early 1980’s interest rates went up to 21% for new mortgages. These were scary times for borrowers, but great for investors!

What Life Stage Are You in Financially

Knowing what life stage you are in financially can help with your financial planning. They are generally as follows: Young and Single; Married no kids; Married with Kids; Pre-retirement; Active Retired and Non-Active Retired.

Each phase has different requirements from a financial perspective. For example , Married with Kids extends for a long period of time from when they are first born until the finish university, with all of the associated costs. Sometimes these phases can overlap. Anyone who has children late in life could find themselves with kids still at home going to university and they are retired. Each phase places some kind of financial stress on you and if you prepare for it, it will not be a problem for you.

Again map out your major financial expenses associated with your life phase and match your income requirements accordingly. You may have to work longer than expected if you find that kids, university and other expenses take up more funds than what you had planned for. On the other hand if you started saving early, have a good pension plan and managed your money carefully, you may be able to retire as planned and still look after all of your obligations while retired. Enjoy the good life as well after retirement.

How Will You Make Your Money Last

This is one of the biggest worries that everyone has. How will they make their money last so that they can live comfortably and still have some left for the grand kids etc? None of us really know how long we will live. We could be dead tomorrow or we could live for another 40 years after retirement. It is not unusual these days for someone to retire at 50, live for another 40 years before passing away at 90 years of age. With this scenario, you will be retired more years than the number of years that you worked. I agree that this is unusual, however some have done it. Many more people are retiring at 55 or 60 and living to 90 and 95 years of age. This is still a long time to live on your retirement savings.

Making your money last is a combination of factors. Controlling how much you spend, having sufficient savings and pension income, taking advantage of interest rates that pay well and living within your means.

Once you retire, your income really depends on pensions and investments. For the most part it will stay pretty constant, unless you are heavily interest rate dependent and the rates change drastically. Pensions will increase based on the inflation index, which is to say not much at the present moment. The only way you can make your money last is to control your spending.

Controlling your spending and being careful about doing upgrades to your home, vacation spending, gifts to the kids etc are all within your control. Utilities , taxes at the municipal and federal levels are not within your control and you just have to pay them. Make sure that you are getting all of your deductions and use a good accountant that ensures you minimize your tax exposure.

Controlling your spending on discretionary things is the real way that you can make your money last. However when you are healthy you should enjoy life. It really does not matter how much money you have once you lose your health. Having a million dollars while you lie in bed does not do you much good other than make you comfortable.

If you are not comfortable about talking about life spans and death, you can refer to your parents in terms of how long they lived. Add 5 years because you had a healthier life style and that is as good an estimate as any regarding your life span. If you had a family member die early of heart attach chances are you will live well beyond their age due to the latest health improvements.

Once you have arrived at a life span, it is a simple manner to calculate how long your money will last, if you spend it equally every year. There is some risk to this approach since you could live longer than your estimate and you will have to deal with it at the time.

The worst thing for many people is that they cut back, saved and did not spend their money in case they might need it, only to pass away or become sick before they could really enjoy it. Enjoy your life and spend some of your money while you are healthy enough to enjoy your favorite pass times.

10 Years to Retirement Are You Ready

This is the most critical time for saving and planning for retirement if you have not been doing so prior to this. You will never achieve the level of savings that you could have if you had started earlier, however you can still make up a great deal if you start 10 years prior to retirement.

If you are thinking about retiring in 10 years and your confident that you will be able to work for another 10 years, start now by saving as much as possible following the general guidelines that we have outlined in this post and others. If you are not confident that you will be able to work that long because of health issues or you are afraid of being laid off by your employer, save everything you can and curtail your expenses significantly! For those of you who think that you may be a bit over confident, do the same. Over confidence has caused many people unneeded hardship. Save every cent you can for your retirement.

When Should You Retire

The answer is different for everyone. For some they cannot wait until the day they retire and they never want to go back to work ever again. Of course the other extreme is the person who loves to work, enjoys the social aspect of work as well as the extra income. There are many motivators for this type of person. For some it is social, money, power, perks lack of a home life, lack of hobbies and things to do that interest them.

For many people they ease into the retirement. They may actually retire from one job and then continue working for a few years on contract or another job that meets their financial and personal needs. They start by working over the winter, taking the summer off or perhaps they work 3 or 4 days a week and gradually cut back until they finally admit that they have had enough.

Regardless of the reason, it is the right decision for that person. They enjoy life and the people around them for as long as they can. They also enjoy exercise and a proper diet which maintains their health and enables them to continue doing whatever they prefer.

Some of the don’t s and we will use an extreme example to illustrate are as follows: You retire at 65, spend your time at home watching TV, occasionally doing some gardening, however this gradually declines, limited exercise, drink and eat more than you should and generally become a couch potato of the extreme kind. This is by far the worst thing you can do, since you will probably cut years  off your life and be very bored.

Get out and go for walks, get involved with the community, volunteer, take a small part time job, travel to see your family and generally participate in life!

This ends our post on getting ready for retirement. We have covered many topics that hopefully will be of interest to readers. If you did not see what you were looking for, let us know and we will try to address it. Leave your comments in the comment area of this blog! Good luck with your retirement and enjoy your life!

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Long-Term Financial Planning Key To Lasting Relationships

April 28th, 2010 ernie Posted in Retirement 1 Comment »

Long Term Financial Planning Key To Lasting RelationshipsWhile money issues can often be the “elephant in the room” for couples, it is a well-known fact that sound financial management can directly contribute to a successful, long-lasting relationship.  Long Term Financial Planning is one area that can smooth a couple’s relationship. Let’s face it, if there is sufficient money to meet the family’s needs, then there is one less thing to argue about. Many couples find themselves arguing over money, when they could avoid the entire issue by sitting down with a financial planner and establishing a sound plan to deal with their daily expenses as well as  save sufficiently for their retirement.

Once both sides understand the fundamentals of a sound financial plan and understand what the plan will give them when they retire, there will be much less stress on the relationship. A common goal for a team to aim for goes a long way to establishing and solidifying a relationship. Both partners must be involved and both partners must not only understand the process, they must have the same goals and objectives. If not, well there may be more basic issues to address which will not be discussing in this blog.

Once you have made the decision to save for retirement, have a set of goals and a plan of how you will get there, it is time to develop and implement some of the tactics that will enable your plan and goals to be met.

Long Term Financial Planning – How to Get Started

To begin the process of easing the financial stresses of managing a long-term relationship, consider the following points:

Set a Date – Set a “date” to discuss your financial future

  • While it may not sound as romantic as a four-course candlelit dinner, meeting with your financial planner will help couples look at the big financial picture
  • Best of all, working with a financial planner does not have to cost you a cent
  • Develop your combined goals and plans. i.e. when do you want to retire, where would you like to live, what do you want to do when you retire. Focus on general terms, since your plans may change as you get closer to retirement.
  • These plans and goals should be discussed before you meet with your financial planner. This way you will be prepared for the discussion and although you may need to make some adjustments after your planner gives you additional information, you will get much more out of the first session.

Discuss Your Plans with a Financial Adviser

  • Be prepared when you visit your financial adviser
  • Have all of your goals and plans ready to discuss
  • Have an inventory of your current investments, income and expenses
  • Both husband and wife should attend this meeting, in fact both should attend all meetings to ensure that they are not only fully informed, but have an opportunity to contribute as well.
  • One of the major issues with financial planning is for one member to delegate the planning and execution to the other spouse and then have no clue as to whether they will have enough money or not.

Discuss your investment Risk Tolerance

  • Your adviser should discuss your risk tolerance
  • Risk tolerance is used to help you decide what investments to focus on
  • Many people cannot deal with high risk stocks in case they lose their value
  • The basic rule is that if you lie awake at night worrying about your investments, then you are invested in investments that are too risky for your risk tolerance
  • Another rule is that your risk tolerance should decrease with age since you have less time to make up for losses
  • Your adviser will recommend a plan for your investment and show you what you need to save to meet all of your plans and goals

Start Saving Early

Note that the earlier you start saving, the better the chance of achieving your goals and retiring early. Someone at age 25 has a better chance than someone who begins planning and saving at age 45 for example.

We would be remiss, if the issue of diversity is not mentioned as part of your retirement plan. Whatever you invest in, never place all of your investments into one investment. Regardless of how great it is, if this investment were to go south, i.e. significantly decrease in value, then your retirement plan would be in serious jeopardy. Spread your investments across blue chip investments that match your risk tolerance.

We talked about spousal RRSP’s earlier.  A spousal RRSP will help you to split income when the money is finally withdrawn from the RRSP. At the same time, the higher income spouse will maximize his or her advantage from an income tax perspective.

Spousal RRSPs are an excellent way for loved ones, married or common law, to plan for their financial futures. The benefits of income splitting and the savings couples can realize from it will not only set them up for financial success, but will also help to ease the stress that finances can put on a relationship over the long term.

A Spousal RRSP allows couples to take advantage of income splitting, meaning the higher income earner contributes money to the RRSP of the lower income earner with the end goal of both individuals having more equal incomes upon retirement. The higher income earner deducts the RRSP contribution even though he or she is contributing to a spousal RRSP. This system offers many rewards, including the potential for larger tax refunds and a greater return on retirement savings for each individual.

Maximize Benefits – Gain Full Benefits of Spousal RRSPs

–  By using a Spousal RRSP, couples can realize the full potential of a combined income when it comes to saving for their retirement

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