Timeless Financial Tip #7: 6 Steps to Retiring as Planned

Canva Custom Creation: Lowrie Financial

By Steve Lowrie, CFA 

Special to Financial Independence Hub

Retirement isn’t the only reason to set aside current income for future spending. But since it’s usually the elephant in the financial planning room, it’s worth a Timeless Tip of its own.

The following are 6 ways to leverage lifelong financial planning, so you can retire on your own terms and on your own timeline.

  1. 1. Don’t Delay Retirement Planning, Start Today

I know, it’s easy to assume retirement planning is for when you get older. How old? Well, older than you are today (you tell yourself).

It’s also true that a detailed retirement plan is unlikely to come into focus until you’re at least mid- if not late-career. It’s hard to take clear steps toward hazy targets.

But none of this means it’s wise to be too Rip-Van-Winkle-like about your retirement planning. Even if it’s decades away — and especially if it’s not — a few sensible financial planning steps should help you avoid having to take any huge leaps 20 years down the road.

  1. Do Some Financial Forensics

To get started, try doing some Family Spending Forensics. Don’t worry, no forceps will be required to get a grip on what you’ve got and where it’s going. No judgment! Just take a few hours every year or so to ask yourself:

  • How much am I currently spending, in what categories?
  • How much am I saving for upcoming expenses?
  • How much am I investing for the future?
  1. Have a Personalized Financial Plan

Once you have a sense of where you’re at, create a financial plan that outlines where you’d like to go, including in retirement. Your plan should describe what your goals are, when you would like to achieve them, their approximate cost, and where the money will come from. Revisit your plan annually to freshen it, as needed. Having a plan in place will help you:

  • Spot any spending or saving leaks early on. It’s easier to heal a hole when it’s still small.
  • Make the most of new income. If you receive a raise, pay off your mortgage, receive an inheritance, or otherwise come across “new” money, your financial plan will inform you how to use the assets for maximum benefit, instead of randomly spending them on “whatever.”
  • Make good lifetime choices. Few families have more money than they know what to do with. Instead, most of us must bridge gaps between our assets and our aspirations. So, think about:
    • How will you bridge your gaps?
    • Will you work longer or pursue a higher-paying job?
    • Should you spend less, now or in the future?
    • Will you choose to invest more aggressively?

A financial plan helps you make good choices among spending/saving tradeoffs: during your working years and into retirement.

  1. Invest Toward and In Retirement

For most of us, our financial success comes from income earned during our career years. But it’s usually essential to also have invested a significant portion of that income into an inflation-beating, globally diversified investment portfolio we can tap in retirement. A financial needs analysis quantifies what your investment portfolio might look like to sustain a satisfying lifestyle in retirement:

  • Income: How much can you expect to receive in retirement from outside sources, such as government or corporate pensions and benefits, sale of a business, a spouse’s continued salary, part-time employment, etc.?
  • Spending: How much do you expect to spend in retirement? Estimate numbers for early retirement, when you may still be more active and independent, as well as for once you may slow down. Also, consider expenses for when you may require more care.
  • The Gap: Usually, there’s a gap between your income and spending goals. You’ll need to bridge that gap by taking a “salary” from your taxable and registered investment accounts. The goal is to draw a tax-efficient income stream from your total portfolio, while leaving the rest to grow as planned for future funding needs.

Speaking of future needs, remember, just because you’re retired, doesn’t mean your investments should be too. Your investment timeline in retirement is probably longer than you think! For ample, ongoing income, an appropriate mix of inflation-beating stocks and dependable cash reserves often remains the most logical and solid investment approach, even after you’re retired.

  1. Take the Tax Breaks

The good news: The government offers a number of incentives, all aimed at encouraging us to save for retirement. These include various tax breaks, programs like the CPP, and tax-favored investment accounts like the RRSP.

But just because the tools are there doesn’t mean we all make best use of them.

  • Which kinds of investments should you allocate to which types of accounts?
  • When is the best age to start taking your CPP?
  • In what order should you draw income out of your registered and taxable accounts?

You can plump up your retirement reserves by effectively answering these and similar tax-planning brainteasers, covered in Timeless Tip #3: Tax-Planning as a Lifetime Pursuit.

  1. Mind Your Behavioural Biases

Last but not least, there are those behavioural biases I covered in Timeless Tip #4. Throughout your career and long into retirement, your mind can trick you into making poor investing choices, such as adopting an “I’ll just work forever” mindset, or trying to use the market to pursue short-term wagers rather than long-term returns.

But you can also leverage biases such as momentum to establish an auto-pilot approach saving and investing. Simply put, by playing the right behavioural “tricks” on yourself, you can help rather than hurt your retirement plans.

Retiring on Your Own Terms

It can also help to team up with an experienced financial planner who’s guided other families through retiring on their own terms and timelines.

Essentially, this is what retirement planning is all about:

By being thoughtful about how to save and invest toward retirement, you can best sustain, if not improve your ongoing lifestyle—especially once your prime earning years are over.

Let us know if we help you with your retirement planning.

Steve Lowrie holds the CFA designation and has 25 years of experience dealing with individual investors. Before creating Lowrie Financial in 2009, he worked at various Bay Street brokerage firms both as an advisor and in management. “I help investors ignore the Wall and Bay Street hype and hysteria, and focus on what’s best for themselves.” This blog originally appeared on his site on Aug. 4, 2023 and is republished here with permission.

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