'Tis the Season for Retirement Income Planning
September always feels a bit like the beginning of a new year, doesn’t it?
Our students are headed back to school, our lazy summer days are less lazy (but, as a dear friend never fails to remind me, no less summery…at least not until the equinox), and right on time there’s a welcome, much-needed burst of energy to get us through the last few months of an aging year.
And good thing, too - because fall is the season to open up the hood of your retirement plan and do a thorough check up.
What Went Into Your Retirement Plan
Your retirement plan was created at a specific point in time. Together (with guidance from FP Canada’s Projection Assumption Guidelines), we decided on reasonable assumptions to make about investment returns, inflation, spending, and income.
We created and analyzed multiple scenarios where anything that could go wrong did. We projected a whole lot of different futures with random combinations of great, middling, and terrible investment returns layered on top of high, “normal”, and low inflation.
After that, we built a plan to keep you comfortable and secure even if you ended up in the worst case scenario, because we really don’t have any idea what will actually happen in the future.
What If We Were Wrong (And What If That’s A Good Thing?)
As it turns out, almost none of you are actually experiencing the worst case scenario, at least from the perspective of your investment returns, tax policy, and cost of living increases. Most of you have more in your accounts than we projected.
And that’s precisely why we meet once a year to check in on your plan. If we can see that you’re on any path that isn’t the worst one, we can decide together if you can:
Spend a bit more than we originally planned (even after the cost of living increases we baked in)
Change the amount of cash or bonds you own (since you might not need the same amount of stability in your investments)
Not do anything at all except for rest a little easier, knowing you’ve built up a bigger buffer or will have a bit more to leave behind for people and causes you care about.
For those of you who are already retired and actively withdrawing from your savings, we do these reviews in the fall because that’s when we have most of the year’s data available to us and only have to guess about a few short months. If there are any strategic actions we need to take, like take a bit more out of your RRIF, we can do it before the end of the year without rushing.
Sometimes, we invite your portfolio manager (if you have one) to these calls so that your whole professional team is hearing the same things from you at the same time, and we can each provide insight from our own area of expertise.
What Do You Mean, “Homework”?
I like to do some preparation before we meet, so there’s always a little bit of homework for you to do ahead of time, including telling me about anything that’s changed since the last time we spoke and what’s top of mind for you right now that we should talk about.
I ask you to send me:
Your tax return for this year (some clients have added me as a level one representative on their CRA account so I can access this information on my own)
Your most recent investment account statements (some clients have asked their portfolio managers to provide me with view-only access to their account portals online, so I can access the most up to date information without them needing to send a whole bunch of statements)
If you have non-registered investments, the total amount of investment income you’ve earned over the year, and an estimate of income you’ll receive until the end of the year (if you have a portfolio manager we ask them to provide this)
The amount of cash you have on hand in chequing or savings accounts
The current balance, payment amount, and interest rate of any outstanding debts
The amount of income you’re receiving from sources like a workplace pension plan, Canada Pension Plan, and Old Age Security, plus any amount of income tax that’s being withheld
If that sounds like a lot - well, it is. It’s less than you had to gather when we first created your financial plan, and it’s definitely easier on you when I can view your tax returns and investment account balances without you needing to send anything, but there’s still time and energy involved.
Every Year? Really?
I look at it this way, though: it’s time and energy spent in small(ish) doses every year on small(ish) nudges to your plan so we avoid having to spend lots of time and energy all at once five years from now to throw our whole weight into changing your strategy because everything about your plan has changed in the meantime.
What’s that they say? Slow and steady wins the race? Let’s win this race together.