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Retirement Planning: Before You Begin

Before you actually begin your formalized retirement plan as outlined in our IFM Retirement Planning Approach: Step-by Step section, you should familiarize yourself with some background information on the subject.  For instance, you should know that a retirement plan is a flexible process that identifies a path, focus and direction to guide your saving and investing decisions. Establishing a plan will help you to identify the weaknesses and strengths in your current savings and investing decisions.


It’s a relatively new concept

Creating a formal plan for your retirement is a relatively new concept, which began to gain popularity as a larger and larger portion of our population began to contemplate their retirement years. As the baby boomer generation began to approach their fifties and began to contemplate their finances and retirement lifestyle, the investment industry responded by developing the concept of the retirement plan.

With the establishment of the Financial Planning Standards Council (FPSC), in November of 1995, retirement planning became a legitimate activity and the beginning of a growth industry. Today retirement planning is a major industry that employs tens of thousands of Canadians that have been licensed and certified to provide retirement planning services.

Where to look

As a result of the large number baby boomers approaching retirement age and the large number of professionals and financial institutions offering retirement planning services, it is not difficult to have a retirement plan developed. If you are not interested in developing your own plan, simply ask your investment advisor or financial institution to help. They all have computer software available to them that enable them to easily produce a retirement plan.  However, if you are interested in developing, managing and monitoring a customized retirement plan, InvestingForMe provides the necessary tools and information to make the process easy.

Note: Our planning approach follows a five-step process that uses the financial tools contained within the InvestingForMe Tools section. As you work through the planning process you can save your work to the My Folder section for future reference and updating.

Different kinds of retirement plans

Depending upon your personal financial circumstances and the qualifications of the plan’s provider, your retirement plan will be very simple and straightforward or it will be very complicated and involved. For example, have you been working hard and contributing to your employer’s Defined Benefit Pension Plan for 35 years? If so then you should receive a pension income that will contribute significantly to your retirement needs. This will typically make your retirement plan simpler to develop. However, if, on the other hand, you have worked hard to start and build a business, you have no company pension and you plan to transfer or sell your business to finance your retirement, you may find your retirement plan requires greater detail and more complicated planning strategies to generate a successful transition into retirement.


The number of planning approaches and report formats available to you are numerous and will vary depending upon the planner’s philosophy and the financial software they use to create your plan. InvestingForMe offers a basic approach to establishing a retirement plan, which is outlined and detailed in the Planning your retirement: Step by step section of our Retirement Planning section.

Use accurate numbers!

As with any planning process that forecasts future outcomes, planning for your retirement will require you to make a number of personal and financial assumptions about future events. A few of the assumptions you will be required to make include the following:

  • the rate of return earned on your accumulated savings (RRSP, LRSP, LIF, RRIF and Taxable Accounts, etc.)
  • the future value of your assets (real estate, ownership in businesses, cars, boats, planes, etc.)
  • the amount of debt, if any, you will have at the time of your retirement
  • your pension income (private and government) during your retirement

The accuracy of these assumptions will greatly influence the success or failure of your retirement plan. Try to use realistic and conservative assumptions when planning for your retirement. Your plan should be achievable and practical, not a dream vision of your hoped-for retirement.

Note: For example, one of the assumptions you are required to make, when preparing a retirement plan, is the rate of investment returns earned from your accumulated savings. If you plan to retire in 15 years and you have $100,000 of accumulated savings to invest, a 4.0% rate of return will build to $280,212, where as an 8% rate of return will build to $452,977. That is a $172,765 difference in forecast accumulated savings. Depending upon your available pension income at the time of your retirement, your planned retirement income may be heavily weighted toward receiving investment income and, as a result, the amount of accumulated savings generating income is critical. So, if we take this example one step further, then an assumed rate of return of 8% in your plan and actual returns of 4.0% will lead to a $172,765 short-fall in accumulated retirement savings. This in turn would lead to a $13,821 ($172,762 X 8%) annual shortfall in your planned investment income. So, if you originally planned on needing $50,000 of income to support your retirement, this $13,821 shortfall represents 27.6% of your planned retirement income. Using accurate and conservative assumptions will help you to avoid failure and disappointment in retirement.

Note: Here is a link to some very useful statistics about pensions, benefits, CPP/QPP, OAS, Income Tax Limits. etc. that will be helpful when creating your retirement plan. - Pension Statistics 2013

Use existing financial planning documents

InvestingForMe follows a simple planning process that uses your current Household Budget and Net Worth Statement. Once you know your current financial circumstances you can build upon this base by

  • estimating your date of retirement
  • estimating your net worth in retirement
  • estimating your expenses in retirement
  • estimating your retirement pension income (private and government)
  • estimating your investment income in retirement
  • estimating your retirement income surplus or shortfall

Note: The estimate of your retirement income surplus or shortfall is a reflection of your retirement plan’s success or failure. If you estimate that you will have an income surplus, then review and verify your assumptions and estimates to confirm you are comfortable these are realistic and achievable. If they are, then well done! On the other hand, if your estimated retirement income shows you will have a shortfall, then you can

  • revisit your estimates and assumptions to ensure these are accurate
  • revise your estimates, such as your retirement date and your retirement expenses (maybe instead of two cruises a year you should only plan for on, etc.)
  • in addition to the investment income, consider using a portion of you savings capital to supplement your income in retirement

Common pitfalls in retirement planning



Finally, in planning for your retirement there are a few common pitfalls to keep in mind when deciding whether or not to use a portion of your accumulated savings to supplement your retirement income including the following: 

  • Most retirees are more active during the years leading into their late 70s, when their health is good and the desire to travel and pursue active hobbies is greatest. As a result, their retirement expenses are higher during this period. By the time they reach their 80s, most are happier staying close to home and being less active. This retirement cycle often means their net worth actually increases during their less active years as their expenses decline. So if you chose to use a portion of our accumulated savings during your active years you may find that this is offset by an increase in your accumulated savings during the less active years.
  • If you plan to leave an estate for your family or friends, keep in mind that your beneficiaries will not view your savings the same as you. For your beneficiaries the money you gift them (estate or insurance) is often viewed as found money, similar to winning a lottery or slot machine jackpot. As a result, the trip you put off today may become the new dream kitchen or speedboat for your beneficiary.
  • Many retirees will cancel desired retirement activities because they worry they will not have sufficient income or savings to support their future care should they require it. If you are in this camp, you should take the time to analyze the true financial impact of moving into a retirement care home. More often than not, you will have reduced expenses as a result of selling your car, home, cottage, etc. that often accompany the move into a retirement home and these expense reductions help to significantly offset the costs of your care. In addition, if at sometime in the future your care requires an aspect of medical assistance, then a portion or all of your care costs become deductible against your taxable income, again further offsetting your care costs.
  • Finally, as the old saying reminds us, "You can't take it with you." So make sure you achieve as many of your dreams and desires as possible during your retirement. Accomplish your retirement priorities early.

Remember: Retirement planning is a flexible process that will help you to assess the success of your saving and investing decisions in achieving your goal for a financially secure retirement.


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