Question #1 of Series: "So what do you actually do?"

Whether we clearly define it or not, I think most people’s goal for building and maintaining wealth is to live a “work-optional” life and experience financial freedom, otherwise known as retirement.

The most common questions I get asked are – How much money do I need to retire? or Do I have enough money to retire?

The answer is.. it depends.  These questions are usually what a well-constructed financial plan answers.

 

However, here’s what I would need to know to answer these questions for you:

 

1. What type of lifestyle do you want in retirement?

Make sure you have an honest vision of this.  Do you want to travel the world and never have to return to the workforce again?  Do you want to work part-time at a job that is perhaps less mentally taxing than your previous one, but gives you structure in your day and the ability to socialize?  Think about what you want your retirement to look like and it will help determine the other questions you should ask yourself.

 

2. Sources of income in retirement.

Outside of CPP and OAS, will you have any other sources of income in retirement?  Do you have a pension from the job you’re retiring from?  If so, at what age will that start?  Are you going to ease into retirement and take on part-time work?

 

3. Expenses in retirement.

Normally as families approach retirement periodic expenses decline – i.e. your mortgage is paid off, your outstanding debt is settled, your dependents are financially independent – your balance sheet is cleaned up!  So think about your 50, 55, or 60 year old self – what do you think you’ll be spending monthly post-retirement?  Are there any special expenses you need to account for (e.g. medical expenses, funding your grandchildren’s education, etc)

 

4. Asset sales and gifting.

As families approach retirement they often downsize; this commonly takes the form of downsizing of the principal residence.  Some families also like to gift to their next generation throughout their lifetime rather than through their Will – if this is something you’d like to do you will need to quantify the amount and timing of this as well.

 

5. Timing/Time horizon

How old are you now and at what age do you want to retire?  This will determine how much time we have to build and protect your wealth.  Financial plans are typically done to age 90 as well – this will give us the number of years you expect to be retired and living off of your investments.

 

6. Do you want to spend it all??

Some families like to leave an Estate for their heirs, but some want to use and gift it all throughout their lifetime.  This is an important consideration to note because it lets us know how much of your investable assets we have to work with. 

 

7. Current financial picture

How much do you currently have in liquid and fixed assets?  Do you have any debt?  How much are you saving?  What are you currently invested in and do you want or are you open to changes in how your portfolio is invested?  Will your savings and investing habits stay static from now until retirement or do you expect them to change?

 

These questions serve to answer the final and most important question:

What will your income requirements be from your investments in retirement? 

Once we answer this we can reverse engineer the formula to find out how much money you require.

 

PRO TIP: START EARLY!  If you are starting to make meaningful income and are accumulating wealth it is important to know where you stand.  Have a financial plan done to see if your financial habits are setting you up for the future you’re envisioning, and if not, know that there’s still time to make a change!

 

I often do complimentary financial plans for prospective clients, so feel free to contact me if you’d like more information!

 

 

As always, I wish you all wealth & wellness,

Josephine