Why do I need a Retirement Plan?

Retirement planning is essential to any comprehensive financial plan. This is so as life expectancies have increased dramatically in recent history and individuals increasingly wish to retire sooner to spend more time with family, travel, or pursue hobbies to name a few. As such, most individual are facing multiple decades of unemployment with no option or desire to return to work in their twilight years so ensuring they are able to maintain their standard of living throughout retirement has become increasingly important.

What is Involved in Retirement Planning?

In essence, creating a retirement plan in the context of your overall financial plan involves taking steps to ensure you are able to comfortably transition into retirement with the peace of mind knowing you are likely to maintain your standard of living regardless of financial shocks. It is an evolving process that begins early in your working years as you begin saving, and continue to do so as you approach retirement.

The first step in retirement planning is establishing your retirement goals. This involves gaining an accurate picture of your expected spending, as well as any larger expenses and their expected timelines (extended travel, renovations, vehicles, helping children/family members). 

The second step is to identify sources of income in retirement. Whereas individuals often have a single source of income from employment in their working years, in retirement their "paycheque" is often comprised of income from multiple sources including government benefits such as CPP and OAS, employer sponsored pension plans, redemptions from registered accounts such as RRIFs and TFSAs, and non-registered savings accounts. 

Once estimated future cash flows are established using some baseline assumptions such as rate of return and inflation, action items that form the basis of the retirement plan are put forward and implemented. This often involves the establishment of a savings plan, managing asset allocation, investing in the right accounts to minimize taxes, and ensuring risk management strategies are put into place to ensure a disruption to employment does not catastrophically interfere in one's plan.

How Do I Know If I'll Be Ready to Retire?

Given the timelines involved in retirement, a period of unemployment often spanning 30 years or more, and given the inherent uncertainty of life, it is impossible to gauge with absolute certainty the expected cash flows of an individual over the course of their retirement. There are, however, several steps that can and should be taken to increase confidence as one transitions into retirement.

• Start saving early: According to Albert Einstein, compound interest is the 8th wonder of the world. He had a point.

• Be mindful of asset allocation: Generally speaking, there is a balance to be struck between exposure to the volatility of the markets, and protecting one's principal at the expense of potential returns and exposure to inflation risk.

• Manage your Risk: For many individuals, their greatest asset is their ability to earn an income. Undergoing a thorough risk analysis and budgeting to mitigate this risk through insurance designed to protect your income, is key to ensuring a disruption to your income will not derail you and your family's financial well being.

• Keep a Budget: Having a solid grasp on your cash flow in both your working years to ensure you are maximizing your savings, and in retirement to ensure you do not rapidly deplete your savings is vital. After all, the more you spend, the more you'll need.



• Work with a Certified Financial Planner (CFP): Having a personalized, written financial plan prepared and revisited regularly by a CFP professional will help provide peace of mind, allow you the opportunity to test what-if scenarios, make course corrections, and allow you to gauge the potential impact of significant financial decisions on your plan, before you make them.