Are you concerned about Retirement?

“Retirement: World’s longest coffee break.”
—Author Unknown

Families are becoming increasingly concerned about achieving and maintaining their long term retirement goals. Some retirements will be in doubt. Others will fall short of the objectives. Having sufficient, reliable sources of funds is at the top of the worry list. Deploying a secure retirement plan spanning 20 to 30 years, often longer, is a demanding journey for many.

Planning for retirement remains a balancing exercise between providing for today and salting away a big enough portion for the later years. Sadly, not everyone gets it right. Hopefully, you will never have to face that dreaded realization. That is, you don’t have enough money to retire, or continue retirement, as planned.

“Most retirement concerns or mishaps typically surface after age 60.”

Someone who is broadly qualified should be in charge of stickhandling this exercise. Perhaps, someone who can take on duties of a “wealth pilot.” Extensive experience is desirable in navigating the nest egg through the myriad of temptations for making sudden moves. Logical decisions that place the family’s best interests first are a must. It also manages overreactions to daily headlines.

Canadian families rely on a combination of financial sources to fund retirement: personal savings such as cash, RRSP, RRIF and TFSA accounts. A variety of real estate properties contribute. Employer pension plan benefits are important to many. Government benefits typically include Old Age Security payments net of clawbacks and the Canada Pension Plan. The last two offer some flexibility as to when they commence. American families have their own assortment of registered accounts, such as 401(k) and IRAs, along with entitlements to Social Security.

Most retirement concerns or mishaps typically surface after age 60. This situation may pose a variety of difficulties to recover from. Some investing landscapes have been getting a little tattered of late. Continued low-return environments contribute to the dilemma.

What causes shortfalls

All retirements need to deal with several moving parts at once that develop along the roadway. I summarize some of the more critical reasons that affect retirement funding shortfalls:

• Not saving enough to fully fund the family retirement.
• Being in denial that the nest egg is not sufficient.

• Spending more than can be safely drawn from the nest egg on hand.
• Incurring large investment losses or borrowing more than safe limits.

• Sustaining a breakup of the marriage or relationship.
• Employer developments forced you to early retire sooner than planned.

• Enduring a business failure or financial setback.
• Involuntary payment reductions from an employer pension.

• Incurring significant health costs or financial emergency.
• Investment game plan is too conservative or concentrated.

• Underestimating costs incurred, such as a retirement home facility.
• Ignoring the adverse impact of inflation over the long run.

Investors are wise to delve into the pressures of delivering long-term portfolio results. Most nest eggs receive little or no saving capacity after retirement begins. Think of this as having to rely only on investment returns, say for 30 years. That is both hard to imagine and accomplish.

In addition, emotional attachments to investments owned typically prevent portfolios from taking corrective actions in a timely manner. For example, investors hold onto loss positions far longer than necessary.

Any one reason, or combination, can abruptly slam the brakes on family retirement goals. You typically need to act quickly to rectify the setback in the making.

I suggest starting with a deep breath. Then proceed to methodically analyze and estimate the size of your retirement shortfall. Sketching a few “what if” scenarios should help your family identify and select the best ways to move forward.

Assess your options

Swift and constructive actions are required for retirements in jeopardy. Some situations may not allow much time before a clear remedy must be in place. I highlight some important options worth exploring:

• Rethink your new retirement goals, assumptions and time horizons, say at least to age 90.
• Resize the income financially possible for your family under the new circumstances.

• Cutting back on outlays and expenses are areas of high priority.
• Find more saving capacity for channeling into the new retirement plan.

• Dealing with family residence needs may become preferred solutions for many.
• Some will benefit from a home downsizing, others opt for a rental strategy.

• Moving to a less costly real estate location is an important consideration.
• One or both spouses working longer, or going back to work, is commonplace.

• Staggering retirement for each spouse may be necessary adjustment.
• Ensure receipt of objective advice and guidance suitable for your needs.

• Those who still have a mortgage or other loans can benefit from repaying debts.
• Consolidating and refinancing debts into a new mortgage or credit line may help.

• Some cases involve the reduction of monetary assistance to family members.
• Taking on more investment risk is often neither prudent nor a lasting strategy.

Often a solution appears to be the perfect fit, whereas in reality it is not available. For instance, working past age 65 may alleviate the retirement shortfall for many families. However, serious changes to personal health will require major reassessments of strategy.

The most affected retirement cases may venture into dire straight territory. The worst scenarios may result in flavours of bankruptcy proceeding. This ballpark should be avoided as it typically delivers lasting damage.

Urgent moves

The urgent objective is to design and implement a realistic plan of action. You want to rectify the family predicament over a workable period. Aim for a plan that prevents you from sliding back into a similar financial dilemma. The best success stories are those where plans are agreed to and followed by both spouses.

If you don’t have all the tools to design the new plan, consult an independent professional. However, always be prepared to entertain some potentially harsh recommendations in the process. Lastly, the family should meet periodically to ensure the revised plan stays on the rails.

Perhaps, the most effective way to keep a keen watch on your retirement prospects is to periodically update the family’s retirement projection. If perchance that projection has never been crafted, move it up immediately to first position on your “must do” list.

Adrian Mastracci, Discretionary Portfolio Manager, B.E.E., MBA started in the investment and financial advisory profession in 1972. He graduated with the Bachelor of Electrical Engineering from General Motors Institute in 1971, then attended the University of British Columbia, graduating with the MBA in 1972. This blog is republished here with permission from Adrian’s website, where it appeared April 17.