Retirement income planning is a H-U-G-E topic, which is why I’m breaking it down in my Design Thinking Meets Financial Planning series over three posts. 

First, I want you to actively design answers to the question, who are you, really? What do you need to be happy and fulfilled in the next stage of life? Today’s post will help you use design thinking to plan your income in retirement well ahead of time, and in a future post we’ll design our way through what retirement income planning should look like--for you--once you’ve clocked out for the last time and the paycheque has stopped.

For those of you who are just joining me, remember that Design Thinking is a tool I’ve been using all year to turn hard, general topics like cash flow, taxes, investing, and emergency preparedness into you-focused primers on creating solutions for your unique set of values, constraints, and goals.

Empathize

Set aside your own assumptions about the world and gain real insight into alternate perspectives.

Normally at this stage I’d send you out for fieldwork, that part of the design process that includes gathering ideas and information that you might not have thought about before. 

In this case, that step comes later. The field of retirement income planning--or, rather writing about retirement income planning--tends to jump right into solutions, which isn’t ideal. The number of clients who come to me confused after doing all the background reading and coming out the other end asking “yeah, but what about ME?” tells the tale. Forget about the 4% rule, the bucket strategy, and the pension gap. Those are retirement income bricks, and we haven’t even drawn the blueprint yet! 

Your first job is to figure out who you want to be once your career no longer defines you (even if it didn’t), and if you haven’t done that work yet, bookmark this and come back after you have. There’s no sense in designing the money part of your retirement if you haven’t figured out the living part. 

The next step is still to gather information...but all of it is about you. If you like, you can think of step one (empathize) as laying the papers out in front of you, and step two (define) as actually reading and sorting them. 

• How does money flow into and out of your hands? How involved are you in that flow of cash? Is there a structure at work that you can use to tell you how much your life costs? Do you owe money to anyone?

• When’s a good time to retire? Do you have projects you want to complete first? An event you want to be fully retired for? A big expense you want to pay for first? 

• What do you know about your pension, if you have one? Are you stuck with just the information on the statement, or has your employer made tools to help understand them available?

• Do you know how to find out how much you’ve contributed to the Canada Pension Plan over the years and what you’ll receive in return? Do you have years of contributions to another country’s plan that could count towards your benefit here? Do you understand how your retirement date and the date your benefits start impact your payment?

• Do you know how benefits like Old Age Security and the Guaranteed Income Supplement are affected by your net income, or what goes into the calculation of your net income? Have you been resident in Canada long enough to qualify for a full OAS benefit?

• What are your savings doing, if you have them? Where are they, and how are they invested? Do you have a set of rules for how decisions about your investments are made? Who makes the rules, and who makes the decisions?

• What are you worried about? Do you have family experience with retirement homes and/or nursing homes? Do you have strong feelings about your own cognitive ability and care as you age? Have you authorized anyone to make decisions for you if you can’t anymore? How much of your wishes are written down?

• Are you retiring with someone? Are you working from the same set of resources, or will you each fund your lives separately? Have you compared your hopes and dreams to theirs? 

• What do you want to leave behind after you’re gone? Do you have a Will and/or any written instructions?

You might find that the result of all this empathizing is that you end up more confused than you started, and you may even be feeling guilty about that confusion. 

I hear some variation of “I can’t believe I don’t know this stuff” all the time, and it’s OKAY. You’re likely an expert on all kinds of things, and if sorting out what CPP means for you is overwhelming, well...I have a plan for that! Talk to your friendly neighbourhood financial planner about the overwhelm. 

Define

Use the information you gathered in step one to define the core problems you’ve identified.

I like to think of this step in the process as the ingredients list for a delicious retirement, and after all this squishy, but who are you really? work, it’s finally time for numbers! Fellow spreadsheet nerds, rejoice! (Editor’s note: Ignore her. There’s no need for spreadsheets unless you really, really like them.)

What we’re doing here is drawing the outlines that you’ll colour inside in later steps, using the questions and information from step one to piece a picture of your retirement income together. 

• Cash Flow: How much does it cost to live the life you want to live, after tax? If you have debt, when will it be paid off at your current rate?

• Timing: How much time do you have to prepare? If you live as long as you’re expected to, how long will your retirement be? 

• Income: If you have a pension, how much will you receive and when from the various components (bridge benefit, lifetime benefit, supplementary benefit)? How will a survivor benefit for your spouse (if you have one) change the amount you receive while you’re alive? How much will you receive from CPP if you apply at age 60? Age 70?

• Benefits: Will your income be low enough to qualify for income-tested benefits in some years? Will your income be high enough that your OAS will be reduced?

• Savings: How much are you adding to your savings regularly, and to which accounts? How will your withdrawals from the various accounts you own be taxed? How much would you have to withdraw from savings to top up your pension/CPP/OAS/other income, pay tax, and cover your lifestyle? What’s the best growth you can hope for between now and retirement? What’s the worst? 

• Worries: What is non-negotiable for you in retirement? What steps would you have to take now to make sure that happens? What are the costs associated with staying in your home, accessing in-home care, moving to a retirement home, and/or securing privacy and dignity in a nursing or long-term care facility? What are your representatives or family members actually authorized to do for you? What have you written down for them, and what's in your head?

• Partner: Will your partner need all or part of your income to live comfortably in their own retirement? Do you need all or part of theirs? What will happen to your income when one of you dies? What do you want to happen?

• Estate: What does your Will actually say about how your assets will be handled when you die? If you don’t have a Will, what happens? 

I’ve learned from many years of experience that it’s helpful to record the answers to these questions instead of keeping them in your head. Even we professional financial planners need to record not only what we know, but how we know it; without a set of facts to refer back to, it’s uncomfortably easy to make big mistakes when the time comes to try a bunch of different solutions.

Ideate

Brainstorm solutions, without editing or limiting yourself.

By this step in the design-thinking process, you’re ready to fly a bit. Start with what makes the most sense to you: maybe it’s starting CPP as soon as you retire, waiting to withdraw from your RRSP until you’re required to, and buying long-term care insurance. Maybe it’s buying an annuity as soon as you retire and never thinking about your portfolio again. 

Write down all the ways you’ve thought about as you gathered information. Draw out the different streams of income, if you have an artistic bent, or write yourself in as a character in a series of retirement income narratives if creative writing speaks to you more than spreadsheets do. 

The more ideas you record, the more you’ll realize that there’s an almost infinite set of permutations. Take the time to capture as many as you can think of.

Prototype

Investigate solutions.

If this process is starting to sound like a long one...you’re getting the picture. It IS! Partly, it’s because there are so many ways to fund retirement and so many choices to make. Mostly it’s because I want you to understand that there’s no single right way to do this...there’s only the right way for you, and finding it takes time and a certain amount of reflective intelligence. 

At this prototyping stage, you’ll be narrowing down the results of your ideation spree by examining what’s actually possible, so knowing what the rules are is important. For example, you might have brainstormed an idea to withdraw everything from your Locked-In Retirement Account before starting CPP...but that would exceed the maximum withdrawal limit for those kinds of accounts. Cross that one off the list. 

Or you might have written out a plan where you retire at age 55, wait to withdraw from your RRSP until after age 71 and deferred CPP and OAS to age 70, but have no other savings to fill in the gap and not enough time to build them. Strike that one too. 

Test

Practice those solutions.

This is where a bit of spreadsheet skills or experienced access to financial planning software can be really useful. Why? Because you can’t test your retirement income plan in real life! Oh, you can test parts of it--by artificially living on only the amount you think you’ll have to spend, or taking a self-funded sabbatical--but as useful as those exercises are they’re just not the same as the real thing, and most of us only get one of those. 

So the test we’re looking for here is more like a stress test than a dress rehearsal. We’re looking for all the different ways retirement can go horribly wrong and how combining the various ingredients of your plan in new ways can give you a better chance of avoiding catastrophe. 

Will you be able to protect yourself against everything? Nope. The goal here is to find a balance between the uncertainty you can live with and the uncertainty you can’t. This is where the retirement income researchers like Dirk Cotton and Mike Kitces in the US and Fred Vettese, Moshe Milevsky, and Alexandra MacQueen here at home are worth consulting, since they’ve spent entire careers thinking up new and terrible ways that your retirement security might possibly be threatened, and new (or old) ways to put the retirement income ingredients together to duck those threats.

Because you started with specifics of you, rather than the generalities of the research, this testing, re-calibrating, and testing again shouldn’t leave you overwhelmed. You-focused planning always results in clarity...if it doesn’t, ask for help! That’s what I’m here for.

Are you worried about your parents’ finances? Your own data privacy? Dating someone in a higher income bracket? This month’s top three might not have everything you need to alleviate your stress through the busy month of September, but they will provide you with some perspective on concerns that many of us face.

If you’ve got a bit of time after you’ve waded through our top reads, of course there is more! Gender wars, investing for millennials (and learning from their parents’ mistakes), what exactly you’re signing up for as a power of attorney for personal care, couch potato investing news, online security and… well, I could go on. Scroll down and fill your reading list with insights you’ll find useful when making great decisions in your life.

Ask the Bitches: My Dad Sucks with Money. How Do I Make Him Change?

From Kitty

"As an opinionated-ass person, one of the hardest lessons I’ve learned is that I can’t control other people. Even if the reason I want to control them is because I love them and I want to protect them from the consequences of their choices. It’s easy to forget what makes me happy doesn’t make everyone else happy. To assume otherwise is disrespectful on a fundamental human level."

(This reminds me of this Because Money conversation about our parents.)

Read the full article here.

The spy in your wallet: Credit cards have a privacy problem

From Geoffrey A. Fowler

“In 2019, it’s hard to trust companies that don’t think they owe us clarity about data.”

(While the privacy laws in the US are different than they are here in Canada, the essence of the privacy problem is just as real here at home.)

Read the full article here.

Dating Between Income Brackets

From Emily Nixon

"I think sometimes what feels like quality couple time in his mind feels like a financial stress in mine. I worry that me opting out of the expensive event feels to him like I’m saying no to spending time together, and that “we could play board games instead” just feels like a cop-out."

Read the full article here.

You can read this month's entire list below:

The gender wars of household chores: a feminist comic | Emma

A visual guide to the concept of “mental load.”

How millennial investors can learn from their parents' mistakes | Tom Bradley

I love that Tom started with the most important pieces of investing (capacity to save, purpose, and asset mix, and resilience) before delivering his four excellent recommendations.

What an Attorney for Personal Care Can Do [in Ontario] | Dr. Richard Shulman

Do you know what the job entails when you're agreeing to act as someone's substitute decision maker? Do you know what you're asking your family or friends to decide on your behalf? It's a good idea to think about it well ahead of time.

TD E-Series Changes | John Robertson

If you're an e-series couch potato investor wondering what that proxy form you got in the mail was all about, our friend John has the goods.

Could retiring at 61 significantly reduce your CPP benefit? | Alexandra Macqueen

Alexandra's one of the only two people in Canada who can take the complexity of a CPP calculation and make it clear, using terminology most of us can understand. This is a great refresher on what goes into a benefit calculation and the decision of when to apply for that benefit.

How to Secure Your Online Financial Accounts | Dirk Cotton

This is a must-read (although Canadian readers can ignore the information about TreasuryDirect accounts). If you're worried about online security - the likeliest weak points are you, your phone, and your passwords.

The Laws of Investing | Morgan Housel

"A theme here is that investing is not just the study of finance. It’s the study of how people behave with money. So most of these “laws” describe a universal feature of how people respond to risk, reward, and scarcity.

They are simple. But they are, I think, part of a foundation that governs most of what happens in investing, and will keep happening as long as investing exists."

One woman's "what if" crisis and message: get out of the cave where money is concerned | Doris Belland.

"Here’s the thing about starting to take control of your money when you’ve been living on financial autopilot and deferring to your partner: it can be difficult. When you pull up the rug, you find dirt you didn’t know existed."

(This article is reposted with the permission of the author. It was originally published here Boomer & Echo.)

Imagine this scenario: you’ve gone into the bank to see about setting up a home equity line of credit, or buying a cottage, or increasing your regular RRSP contributions. You’ve sat down in the banker’s office, gone through the details of your request, and – as you’re talking about how much equity you have, what your income is, or if you have investments held outside the bank, the person across the desk from you gets a little antsy.

She excuses herself politely, and when she comes back she’s not talking about your HELOC, cottage, or RRSP anymore. Instead, she’s talking up the sophistication and general awesomeness of a totally different banker down the hall.

That banker has an office set apart from the usual bankers you see. That banker might even have a different colour on their name tag or office sign. You hear that she has access to better investment products, has fewer clients and therefore more time for you, that she maybe has designations that your banker doesn’t, or might be able to give you better pricing on your banking or borrowing products.

Every one of the six charter banks in Canada has a special offer like this, which on the scale of elitism lands higher than regular (or core, or retail) clients but below actual private banking clients – those folks with enough money that they might not ever need to darken the door of a neighbourhood bank again.

Every one of the banks divides its clients up according to their income, investable assets, and securable net worth, and the ones that are subject to the kind of meeting described above are considered (and referred to, just not in public) as “high value clients.”

It probably feels pretty good to get singled out for it, to get a special card, for your online banking login screen to change colours, and to – sometimes – be treated differently by the tellers. If you ever overhear someone referring to you as a high value client, you might even preen a little bit; you’re valued.

But stop for a minute and think very, very carefully about what actual, quantifiable benefit you’re receiving as a “valued” client. Are you entirely sure that you’re valued? Might you instead be simply valuable?

Is your everyday banking cheaper than you could find elsewhere, or with a different combination of products available to everyone?

Is your lending at a lower interest rate than someone else with a comparable credit score and ability to repay? Demonstrably?

Are you receiving more interest on your GICs? Are you paying lower MERs on your mutual funds? Are you receiving a lower annual price to manage your assets?

Is your ability to have your banker or her assistant complete transactions or make changes for you by virtue of a phone call or email because they’re elite bankers, or because you have a signed agreement on file that anyone could get in order to enjoy the same convenience?

Do the tellers/telephone representatives/bank machines treat you well because they know you/they’re polite/they’re machines, or are they in awe of your elite status and scared of what the loss of your business might do to the bank if you wait in line too long?

Now, it’s entirely possible that the only person worth talking to in a branch is the High Value banker, whatever your particular institution might call her. She (or her assistant) might have been with the bank longer than you’ve been alive. She might know all the procedural ins and outs, she might have the disposition to fight for you to get the best pricing and the best service, and she might have the most level-headed and fee-conscious approach to investing possible.

Or she might not.

I can tell you this: she is not any more or less guaranteed to be in the same position the next time you need to speak to her. Turnover is just as problematic for this position as it is for regular advisors if not more so, since often this pool of staff is targeted for regional management. You might get someone with whom you can build a decade-or-more-long relationship or someone who will stay in the office until next year. It depends entirely on her own personal ambitions.

She is not any more or less guaranteed to have more certification or training. Often, especially in smaller towns, the demand to have someone’s – anyone’s – rear-end in that seat to be present for an existing pool of high value clients is overwhelmingly more important than holding out for the next highly-qualified individual who has the entire alphabet after her name and happens to be jobless.

In fact, this position is almost always much more in tune with the bottom line of their operations than a regular bank representative is.

Think about it this way: to succeed, and – perhaps more importantly – to appear to succeed in a sales-driven industry like banking, you need to know exactly how the sale of each financial product impacts your bottom line. As a lowly banker with ambitions of promotion, you absolutely cannot afford to let anyone waste time in your office without buying something, and preferably something that will impact your performance scorecard as positively as possible. Management would rather promote from within, and the people who get promoted to high value positions are the people who excel at selling.

So if you’re offered the special card – or if you have one languishing in your wallet right now – spend a little bit of time thinking very carefully about how valuable your business is to your bank. They want your money – your lending, your accounts, your investments, and your transactions. They want it badly enough to create a whole other service channel to create the perception of better, more personalized service and elite status, but they don’t have to pay up unless you demand it. They’re beyond delighted if you just take the fancy card and feel good about it.

Don’t settle for being herded into a cordoned off area marked with dollar signs. Understand your value to the institution, and use that as leverage to negotiate a better deal for yourself,

You know the nagging feeling that something - even a lot of somethings - are wrong, but the language to express what that something is and why it’s wrong eludes you? Enter Shoshana Zuboff and The Age of Surveillance Capitalism. 

Here’s an example: loyalty rewards. Something about a corporation tracking every purchase I make and giving me rewards in exchange for buying certain products they’ve decided I need has always struck me as...off (see what I mean about elusive language?)

In the past, the aphorism has been “if it’s free, you’re the product” but Zuboff’s conclusion, supported by rigorous analysis, is that you’re not the product, you’re the raw materials. The product is your behaviour and the power to nudge it in ways that are beneficial to the owner of the data, and that product - your data - is worth so much to the organizations who profit from it that it’s almost priceless.

As we move through the world today, our behaviour is increasingly tracked, some of it with our knowledge, most of it without. Not only our behaviour, but our emotions, preferences, relationships, and vital signs are increasingly gathered, analyzed, packaged, and sold to companies whose entire business model is to use this extracted data to change our preferences and nudge us in directions profitable to them. Provided the screen for data extraction is even marginally useful or entertaining to the humans using it, this large-scale scraping goes mostly undetected...and - in fact - works best when it’s imperceptible. 

This system is surveillance capitalism, and it goes beyond - way beyond - what we think of as cybersecurity or privacy protection. The concern here is not that someone is going to get your credit card number from an unsecure website and use it to make purchases you’ll be on the hook for. The concern is that many someones have already gotten your physical and behavioural patterns and are using them to make you make decisions that they are benefitting from. 

Your individual freedom to decide for yourself and act on your decisions is grit in the machine of profit. Big Other doesn’t desire your emotional well-being, your self-actualization, or your healthy relationships. It is indifferent to what you decide is the highest and best use of your time, money, and attention. Big Other only cares that you are predictable and profitable. Big Other is designed to create conformity.

Bummer, yes. Hyperbole? Not so much. Granted, there’s a risk in describing something as mundane as that fitness tracker on your arm as an implacable, amoral force intent on turning you into a mindless purchasing battery a la The Matrix and already more than halfway to doing it. But - like Zuboff - I believe these structures of extraction and control are not inevitable, provided we - the raw materials - decide to create a different future. 

Hopefully, this book is a record of what will turn out to be an abortive attempt by corporations and governments to exert total, invisible control on society via our newly but deeply internet-connected lives.

Who should read it?

I know there aren’t many of us who think reading a 2-inch thick tome on the insidious danger represented by surveillance capitalism is a recipe for good times. There are certainly other entries into this topic (notably a 2015 research article by the same author for the Journal of Information Technology, “Big other: surveillance capitalism and the prospects of an information civilization”), but for a fully researched, meticulously crafted study of the historical, cultural, and economic path we’re currently on, the terminology to discuss it, and the tools to recognize it as it shifts and morphs to evade detection, this book is worth working your way through.

If you only have time to read one chapter:

Next time you’re in a bookstore with twenty minutes to spare, pick up this book and read Chapter Eleven: The Right to the Future Tense (pages 329-348). Zuboff uses this chapter to summarize the precisely built foundation of history and terminology in the preceding chapters to answer the question “how did they get away with it?”. These short 19 pages are some of the simplest reading in the book and you’ll walk away better prepared to see the full scope of the problem.

If you only have time to read one paragraph:

“Many people feel that if you are not on Facebook, you do not exist. People all over the world raced to participate in Pokemon Go. With so much energy, success, and capital flowing into the surveillance capitalist domain, standing outside of it, let alone against it, can feel like a lonely and risky prospect.”

(Chapter 11: The Right to the Future Tense, page 342)

If you only have time to read one sentence:

“If we are to rediscover our sense of astonishment, then let it be here: if industrial civilization flourished at the expense of nature and now threatens to cost us the Earth, an information civilization shaped by surveillance capitalism will thrive at the expense of human nature and threatens to cost us our humanity.”

(Chapter 11: The Right to the Future Tense)

Was “balance” a word created just to trigger your anxiety? Do those stock market numbers people go on about actually mean anything? How do former inmates pay the bills once they’re on the outside? 

If any of these questions have floated through your mind this summer - wow, you are just on top of what I’ve been reading! Nice job, you can start curating for me next month. For this month, the Loonie Doctor has some thoughts on your career and that balance thing, those fab ladies at Bitches Get Riches get real about stock market returns, and Lisa Coxon has the downlow on the realities of post-prison finances.

Once you’re through those and if you’re still feeling curious, I’ve got a slew of articles that ponder questions you may not have considered (yet). Simon Shaw’s thoughts on marketing nudges, Christine Liu’s thesis on imposter syndrome, Brigid Schulte’s courageous words on leisure, and Tom Bradley’s advice for sticking to your investment plan for the long-term, will all leave you with more knowledge, more questions, and more direction towards living your best life. Happy reading!

Career Satisfaction & Balance: Stick It To “The Man” & Play Your Banjo

From The Loonie Doctor

For our physician clients, with love: “The point is, spend deliberately on what makes you happy and advances your goals. Not on what others expect.” (Come to think of it, that applies to all our clients. Still with love, though.)

Read the full article here. 

What’s the REAL Rate of Return on the Stock Market

From Kitty at Bitches Get Riches

“Data is like a Literal Genie. If you rub its lamp, it will answer any question you set before it—but the answers can still be deceiving or even damaging if you don’t word them carefully.”

Read the full article here. 

Can you manage your money from jail or prison?

From Lisa Coxon

“When inmates leave a provincial or correctional institution, they don’t leave with a great shot at financial prosperity. Their economic mobility is stunted. Their chances of obtaining any form of credit or even opening a bank account are slim.”

Read the full article here.

You can read this month's entire list below:

Consumers Are Becoming Wise to Your Nudge | Simon Shaw

Not that we’ve all discovered behavioural nudges: “The broader question, one essential to both academics and practitioners, is how a world saturated with behavioral interventions might no longer resemble the one in which those interventions were first studied. Are we aiming at a moving target?”

Imposter syndrome isn’t the problem—toxic workplaces are | Christine Liu

“By treating imposter syndrome as if it blossoms only in the recesses of the mind, we absolve ourselves of addressing the sexism, racism, and culture of overwork that may be causing the imposter experience. Imposter syndrome is not necessarily a disease of the mind, but perhaps a disease of the system.”

A woman's greatest enemy? A lack of time to themselves | Brigid Schulte

“Pure leisure, making time just for oneself, is nothing short of a courageous act of radical and subversive resistance.”

It's getting harder to be a long-term investor: Here's how to keep your focus on what really counts | Tom Bradley

"The investment eco-system is bent on shortening our time frame."