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The ability to retire comfortably is all about creating enough cash flow to cover your living expenses for the lifestyle you want to experience during retirement. With this in mind, it is imperative that you are properly set up financially and emotionally for the steps ahead.
Retirement is a considerable change of lifestyle for anyone. At the highest level, there are some common financial indicators that gauge if you are ready for retirement such as the amount of savings and debt on your net worth statement. Most understand that having low or no debt with a healthy investment account or pension income is critical to retiring.
The most common question is whether they have saved enough money. Lots of rule of thumb guidelines exist but it’s a very personal question that depends more on the lifestyle you want to lead (and the spending requirement for it) more than anything. It’s also important to ensure that you have “stress-tested” your retirement plan to ensure you can financially sustain against the unexpected whether that be medical costs, large home repairs, or market fluctuations. It’s a good idea to discuss your goals with a financial advisor who can provide investment and tax strategies to help fill any gaps in your retirement plan.
We may spend time daydreaming of what retirement will be like, but you may be surprised to know that many of those nearing retirement fear they are not emotionally prepared. You’ve worked hard to ensure that you’re financially secure; you also need to consider if you are emotionally ready. An abrupt change can be difficult to manage and sometimes it is best to tiptoe into retirement rather than jumping right in. This can be done by transitioning into retirement by working part time, doing contract work or volunteering. It can be a shock to people when they trade their familiarity and daily routine of a job for an unstructured lifestyle. We see a lot of people struggle with a few main things such as loss of purpose or identity, social isolation, keeping busy, lack of hobbies and missing work. Surprisingly though, you can be even busier than when you were working. The difference is that rather than things that you have to do, you’re doing things that you want to do! You have more time for fitness, family, learning, and hobbies that you love. You should consider these factors as part of your emotional preparedness for retirement.
Many of us look to retirement as a time to finally do all the things that we’ve always hoped to do but never had the time to accomplish. Ensuring that you have a personalized, holistic, financial plan completed and updated is probably one of the biggest keys to a happy and healthy retirement. Having a plan in place will also help you know what steps you still need to achieve to hit your goals.
There is a lot more to retirement than vacations, golf and spending time with the grandkids, although we do encourage you to do the things that make you happy. When it comes to creating and reviewing your retirement plan, spend more time understanding the assumptions than the results. The better the input, the more accurate the results and the easier the transition into retirement will be. Have discussions at least five years prior to your desired retirement date (even earlier is better if you’re unsure if you’re financially ready) with a qualified financial advisor to help you figure out how you can best prepare both emotionally and financially.
It would be great if there was another word for retirement because there is nothing “tired” about it.
Lori Pinkowski is a senior portfolio manager and senior vice president at Raymond James Ltd., a member of the Canadian Investor Protection Fund. This is for informational purposes only and does not necessarily reflect the opinions of Raymond James. Lori can answer any questions at 604-915-LORI or pinkowski@raymondjames.ca. You can also listen to her every Wednesday morning on CKNW at 8:40 a.m.