A good portion of my financial planning clients are in what I’d call the retirement readiness zone, meaning they are 1-5 years away from retirement. They want a check-up on their financial situation and answers to big burning questions like, when can I retire, how much money can I spend, how long will my money last, and how to withdraw from my savings and investments to create the retirement income I need.

Here is a checklist of things to consider when you find yourself in the retirement readiness zone:

How much do I spend?

I get that many people are turned off by budgeting and tracking expenses, but it’s important to understand what it costs to live your life.

Instead of relying on rules of thumb, like you’ll spend 70% of your final salary in retirement, I find that most of my clients want to maintain their current standard of living, if not enhance it with additional spending on travel and hobbies.

Determine your true after-tax spending, including items like property taxes and home & auto insurance that will be with you for life. Add in your desired annual spending on travel and hobbies, and build in a buffer for small unplanned expenses such as replacing an appliance or doing modest home improvements or repairs.

This spending amount is what will drive the decisions around how much to withdraw from your investments, when to take CPP & OAS, and how long your money will last at that spending rate.

Plan your one-time expenses

Besides your regular after-tax spending, you should also factor one-time expenses into your plan. In my experience, the majority of these expenses will include vehicle replacement, travel beyond the ordinary (ex. bucket list trip to Europe), home renovations, and monetary gifts to adult children or grandchildren.

It’s not practical to assume your spending will stay static every single year. Build these one-time expenses into your plan over the next 10-20 years so you have a better and more realistic understanding of what you can afford and how to access these funds.

What you’ll find is that instead of static spending of, say, $65,000 per year, you’ll have several years of spending $75,000 to $85,000 (or more) to cover these one-time costs.

Estate planning

Make sure to update your will and estate planning documents, including the beneficiaries on your insurance and investment accounts.

Consider giving with a warm hand (otherwise known as give while you live) to your children or favourite charity. What I mean is rather than leaving hundreds of thousands, or even millions, in your estate at 90 years old, consider making smaller gifts to your beneficiaries throughout your lifetime.

Some examples include a gift towards a downpayment, help funding the grandkids’ RESPs, and footing the bill for a family vacation with adult kids and grandkids.

In case I die file

It’s common for one spouse to take the lead on financial matters for the household. But this can be problematic if something happens to the chief financial officer of the house – if they predecease their spouse or become cognitively impaired and can no longer manage the finances or investments. Continue Reading…