Yes, I want to be that smiling, silver-haired elder, laughing with my chic friends as we dine under the stars in some lovely Tuscan town. Oh, how I love retirement ads!
That advertisement did get one thing right. Those actors had to rehearse the role of a carefree retiree.
Many of us will save throughout our entire working lives to ensure our financial plan includes adequate income for retirement. But it’s very hard to calculate how much we need – for a lifestyle we haven’t really designed yet. That’s okay. Keep planning, dreaming, adjusting and saving. ‘Keep your eye on the prize’ as they say.
As retirement creeps closer, you can start to rehearse parts of it to ensure that your income matches your outlook. Here are 5 ways to ‘rehearse’ your retirement so you can adjust your savings or your expectations as needed, before you step into the role.
1. Your Retired Life Budget
Your expenses will be different in retirement than they are now, so calculating a savings plan based on replacing today’s income may not be accurate for you. Once you’ve retired you won’t have the same commuting costs, you will likely downsize or owe less on your home, maybe you’ll downgrade your mobile and TV subscriptions, and you won’t still be paying for hockey equipment, dance lessons, and school supplies. Well, not for the kids anyway.
However, you may plan to travel more, swap your gym membership for a golf membership, and contribute to a grandchild’s RESP. Your total monthly expenses may be less, the same, or more than they are now; the line items will be different. Work through those line items and calculate, realistically, what your future budget will look like, rather than guessing at ‘your number’.
2. Your Ideal Environment
Have you heard the same stories I have, about folks who finally get to retire to the cottage only to discover they hate living there year-round? Or sell everything to move to a small town, and miss everything they loved about the city?
Especially if you’re counting on saving money by moving somewhere new, this is the time to test-drive that idea. Spend at least a week – longer if you can manage it – in your new environment during the off-season. How accessible are the sidewalks and services in the dead of winter? Conversely, how hot do the summers get – and how much additional money will you need to keep the pool clean and the air conditioner running? How close (or far) do you want to be from kids and grandkids? This retired BC teacher found the ideal spot in Thailand, after his 8-year test drive.
3. Your Encore Career
You may be planning to work past the age your company expects you to retire – either because you want to or need to for personal, social impact, or financial reasons. The decade before retirement is a great time to thoroughly investigate your encore career: ensure it aligns with your gifts, values and location; start making connections in your new field, online through social platforms and in person; interview, intern and/or volunteer so you have a realistic picture of the hours, skills and energy it takes; and start compiling a list of all those experiences, successes and transferable skills that will persuade your next employer to hire you.
4. Your Healthcare Costs
When employer-sponsored benefits stop short, saving for health care in retirement can get tricky. We can’t predict the future, so it’s hard to guess what kind of health care you’ll need, or for how long. You can make an educated guess:
As a BC resident, you are required to pay Medical Services Plan premiums. There is payment assistance available based on your income level.
You will have out-of-pocket expenses for services not fully-covered by your provincial plan, such as prescription drugs, eye glasses, hearing aids, chiropractic care, physical therapy, and certain preventive services and screening tests. If you require any of those services now, you’ll certainly need to budget for those in retirement.
A recent article shares that the Canadian Institute for Health Information calculates medical costs paid out of pocket average around $2,700 per year for people between the ages of 55 and 80. Keep an eye on this statistic as you near retirement and include it in your budgeting.
5. Your Portfolio
Whether you’re managing your own investment portfolio or you’re working with a financial advisor to help you prepare, there is some basic rebalancing that should take place about 10 years before retirement. For example:
Start to shift away from equities as you’ll have less time to recover from market volatility.
Consider alternative investment products like Tax Free Savings Accounts (TFSAs), Registered Retirement Income Funds (RRIFs) and Insurance Annuities. Your Registered Retirement Savings Plans (RRSPs) need to convert to RRIFs by December 31 of the year in which you reach age 71.
Calculate your future fixed income – a combination of pension payments, RRIF minimum withdrawals, Old-Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits.
It’s at this point you can compare your predicted income to your Retired Life Budget, and decide whether you need to boost your savings, adjust your expectations, and consider tax strategies that help manage cash flow.
Allowing yourself the time to properly rehearse for your next role as “active, engaged and fulfilled retiree” will make transitioning to this next stage of life easier, and set you up for a successful run.
While we won’t advise on where to relocate in Tuscany, we would be happy to help you prepare a budget, assess your investment mix, or talk tax strategies for your retirement. Get in touch. We’d be happy to help.