How to weather the transition from saving to spending in retirement

Create a retirement plan that will adapt as the financial winds change

You’ve worked hard to save for retirement – prioritizing your goals along the way. You’re tiptoeing towards retirement and you’ve earned your “me time” – now, create a plan for how you’ll spend it.

Approaching retirement after years of hard work can be an exciting time, but it can also trigger feelings of uncertainty about how sunny your financial forecast may be. How long you’ll live is an important factor that impacts how long your money needs to last. The fact is, Canadians are living longer than before, which means you’ll likely need more to be able to support your retirement dreams.

Make the most out of your retirement by working with an advisor.

As you begin to shift your mindset from saving to spending, you may be asking yourself, “Am I going to be OK?” You’re not alone. It can be difficult to envision exactly how you would like the next 20, 30 or even 40 years to look – and creating a plan to support your vision can seem daunting. Don’t fret – I can help.

It’s important to have a retirement income strategy that sets the stage for a long and fulfilling retirement. Part of Retirement Incomecreating a plan that works for you involves setting realistic expectations about your saving and spending habits. Working with me will help you stay focused on the things that matter, rather than the checks and balances of financing your retirement.

Remember, tomorrow can be sunny – and it can come sooner than you think

Do you think your spending will decrease in retirement? Canadians need to be wary of that assumption because spending actually stays more or less the same – and may even increase. To help position you for a bright future, you can take the following steps as you move closer to retirement.

Three to five years before retirement

  • Estimate how much guaranteed income you’ll receive from the government and your employers.
  • Estimate your living expenses and lifestyle needs.
  • Review your investment portfolio with me to find out if you are on the right financial track toward your retirement goals.

One year before retirement

  • Verify eligibility and amounts of retirement income from all sources.
  • Review estate planning.
  • Work with me to put the finishing touches on your customized retirement program.

Six months out

  • Update your beneficiary information.
  • Apply for government benefits.
  • Apply for retirement income from your workplace plan.

Stop asking, “Will I be OK?” Make the most out of your retirement by working with an advisor who can help you better understand and manage your potential sources of income. I can help you develop a retirement strategy that can help set you up for fair weather, while also providing you with a financial umbrella – just in case the wind shifts.

Freedom from winter – buying a second home down south

Do you dream of becoming a snowbird, flying south every winter? Owning a second home in the American sunbelt is a central part of many Canadians’ retirement dreams – it’s the warm, beckoning light on the horizon.

In recent years, declining U.S. real estate prices have resulted in a wave of Canadians buying winter homes in states like Florida, Texas, Arizona, California and Hawaii. In Florida alone, Canadians spent $2.55 billion on homes between July 2013 and June 2014.1

Buying a non-principal house abroad can create many issues that financial security planning can help resolve. I can help provide invaluable counsel through this process, from financing options to life insurance to estate planning. You should also consult a U.S. tax professional.

Buying a non-principal house abroad can create many issues that proper financial security planning can help resolve.

Things to consider when shopping for a home in the U.S.

The first step is working with your family to figure out what kind of home you want. How many bedrooms? Waterfront or desert? Condo or house? What region?

Condos offer a turnkey lifestyle, meaning you’re not responsible for general maintenance. This could save Second Home Buyingyou money on professional caretakers for the months the place is empty.

Listings are online, so start surfing. Once you narrow your choices to a certain area, visit it and explore the neighbourhood. Local real estate agents will be happy to offer you a no-strings-attached tour.

If you plan to rent the property for part of the year, you may also want to meet with property managers to go over fees and other considerations. It’s also a good idea to check in with an accountant to discuss tax issues.

What to keep in mind when building a budget

When you create your budget, include all annual costs – such as property taxes, utilities, maintenance, condo fees and buying and insuring a vehicle.

Next, you may want to get quotes in writing for house insurance. Coverage may be expensive and hard to secure in areas prone to hurricanes and flooding. Also, make it clear to potential insurers if house will sit empty for several months a year. For vacant properties, some insurance policies may require weekly visits, which will be costly if you have to use a professional service.

If you plan to spend an extended amount of time there, you’ll also need to get quotes for health insurance.

Getting a mortgage in the U.S.

It’s not simple for Canadians to get a regular mortgage in the U.S., though it can be done. Keep in mind that, if you’re paying with Canadian dollars, a fluctuating exchange rate can create uncertainty.

Only eight per cent of Canadians buying in Florida opted for local financing between July 2013 and June 2014.1 If you need to borrow to buy, a flexible, reasonably priced option is to use a home equity line of credit from a Canadian lender. While this option can be a simple and effective way to borrow, it is important to work with me to ensure you fully understand how your home equity line of credit is working for you.

I can help you create a budget and, with the help of a London Life mortgage planning specialist, assist you in determining the preferred way for you to pay for your home. You should consult a lawyer for assistance in determining how to structure the ownership. For example, if you plan to rent the property for part of the year, one option may be to structure the ownership as a limited liability partnership.

Buying and selling south of the border

The process is very similar to Canada. Generally, a U.S. lawyer is hired to do title searches and handle the transaction. In many states, the real estate services sector caters to Canadians.

As for estate planning, you’ll want to provide for disposition of the property through a will that is valid where the property is situated and consult a U.S. tax accountant with respect to taxes payable on death of the property owner.

When selling a property, Canadians or their estates will pay capital gains tax in Canada. I can work with you to look at ways to effectively manage these taxes.

Mind the taxman

Canadians are currently allowed to reside in the U.S. for an average of 120 days per year over a three-year period before they may be considered a U.S. resident for tax purposes by the U.S. Internal Revenue Service (IRS).2 The maximum duration of time snowbirds can spend across the border is 182 days per year. Legislation extending this limit is currently being considered.

People living part of the year in the U.S. should file a “Form 8840 – Closer Connection Exception Statement for Aliens.” It tells the IRS that you’re a Canadian citizen and could help you avoid being considered as a U.S. resident. Consult with a tax professional who works with U.S. taxes.

Other considerations

Organizations that represent snowbirds strongly urge Canadians to hire a U.S. lawyer to construct separate powers of attorney and living wills. This will help prevent any hassles during a medical emergency that takes place while you’re stateside.

Canadian financial institutions offer bank accounts and credit cards in U.S. dollars that avoid high foreign exchange fees. If you have a home in the U.S., you can easily open a local bank account to use for everyday expenses and bill payments.

Buying a home in the southern sun is a big decision, and may be a key objective in your financial security plan. Or perhaps it’s a late addition to your list of things to do. Either way, I can play an invaluable role in helping ensure your financial independence while you make your dream a reality.

Retirement Ready

Steps to Help Ensure Your Financial Success in Retirement

You’ve got a nice nest egg saved up, but want to make it last (and grow!) so you can bring your retirement dreams to life. As you move closer to your retirement date, take time to evaluate the factors that could impact your retirement income. Use this quick checklist to stay on track.

Summarize all your retirement income sources. These can include personal savings and investments, company retirement plans and government benefits, such as Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) and Old Age Security (OAS). To verify your eligibility for CPP/QPP and OAS, contact Service Canada1 (or contact the Quebec Pension Plan2). For workplace plans, contact your benefits administrator when you’d like to start receiving retirement income.

There are many steps to consider when nearing retirement. Print this checklist to help prepare.

Estimate your living expenses.Track your current spending and use this information to project how much retirement income you’ll need. Factor in any lifestyle changes that may occur upon your retirement – you’ll want to consider wellness, travel, part-time work or downsizing your home.Retirement Ready

Review your investment portfolio.Work with me to revisit your investment strategy and consider shifting to lower-risk options to slowly and safely grow your money.

Update your beneficiary information. Ensure your company benefit/pension plan(s), personal savings plans and insurance have updated beneficiary information.

Ensure your estate plan is up to date. Now is the time for the important task of reviewing your will and powers of attorney.

Timeline to Retirement and Financial Success

Three to five years to go:

Estimate how much guaranteed income you’ll receive from the government and employers

Project your living expenses and lifestyle needs

Review your investment portfolio with me

One year to go:

Lock down eligibility and amount of retirement income from all sources

Review your estate plan

Work with me to put the final touches on your retirement plan

Six months to go:

Update your beneficiary information

Apply for government benefits

Apply for retirement income from your workplace plans

Now switch off your alarm – yes, permanently. Well, except when you have an early tee time.

Retirement Checklist

Top Ten Questions to Consider for Retirement

You’ve saved well, invested wisely and built a sizeable nest egg. Retirement is within your grasp – or so you think. Here are 10 thought-provoking questions to help you determine your readiness to retire (whatever retirement means to you).

1. When do you want to retire? In a year? Six months? At a particular age?

In retirement, you’ll experience a fundamental shift – from saving to spending. The timing of your retirement is crucial to building your retirement nest egg and assessing how long it will need to last.

These 10 questions can be your roadmap to becoming retirement ready.

2. What percentage of your current income do you expect to need in retirement?

The amount of your current income you’ll need in retirement depends on how much you plan to spend in retirement. Plot out your current budget, then create a projected retirement budget and see where the gaps are.Retirement Checklist

3. How do you plan to spend your money in retirement?

Think about your current spending habits. Are you a penny-pincher or a lover of luxury? These habits will be amplified in retirement, so make sure your savings reflect this. Don’t forget to plan for events that may be out of your control.

4. Have you considered your lifestyle needs in retirement?

Travel lovers, take heed. Your lifestyle needs in retirement play a big part in how you save. For example, buying a condominium and being saddled with condo fees may not be the best idea if you plan on travelling extensively.

5. What guaranteed sources of income can you count on in retirement?

Calculate how much guaranteed income you’ll receive during retirement – such as Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) payments. Then, determine how much additional income you’ll need and where this will come from. While investment income is a nice bonus, you shouldn’t rely on it to pay for necessities.

6. Do you plan to work part-time or full-time in retirement?

Perhaps you want to continue using your existing work skills or explore new career opportunities. Debt and family matters may also influence your decision.

7. How do health and wellness factor into your retirement plan?

Retirement is the perfect time to focus on your mental and physical fitness. Leave room in your budget for activities that exercise your mind and body – the good news is that many of them are free!

8. Are you ready for the unexpected events in life?

When you consider retirement planning, make sure to account for unpredictable events – both financial and personal. Check if your retirement savings are strong enough to support you through a future economic downturn, a rise in the cost of living and a long life.

9. How will you keep your money working in retirement?

Think about how you’ll keep your money growing. Talk to me about investment solutions for retirees.

10. Do you plan to leave a legacy?

You might want to leave an inheritance to your family or favourite charity. Once again, I can help you put this in place.

The answers to these questions can help form a dependable roadmap for your retirement. While you can’t predict the future, you can plan for it.

Good Savings Habits Lead to Financial Independence

Regardless of what you’re saving for – a down payment on a home, a dream vacation, a child’s education or your eventual retirement – developing good saving habits can definitely pay off. Even relatively small but regular contributions can quickly gain momentum thanks to the power of compounding, or making interest on your interest.

Most people can rationalize buying new bedroom furniture or a better and more reliable car by using small monthly payments spread over several years. However, you can also use this strategy to build hefty savings.

For some, saving is instinctive. Chipmunks know they must save enough nuts and seeds to get them through the winter. They even build storage rooms in their burrows.

But it’s important everyone – even humans – realize the importance of saving.

Good Savings Habits

Deciding on your goals for the future

The first step is determining an investment strategy and that means carefully evaluating your financial goals. After all, saving for a down payment on a house or a new car requires a different approach than long-term retirement planning.

So, ask yourself this: what do you want to do with your money?

Crunching the numbers

Next, set up a spending plan to help you determine how much you can afford to put away each month. Plenty of online tools can help you.

Start by going over your chequing and savings accounts and credit card statements, including ATM withdrawals. Make sure to include everything – even those pricey takeout lunches. This exercise can help you trim excessive spending.

  • Setting up a regular, automatic savings plan is an essential part of anyone’s financial health.

Once you have a better understanding of your income and expenses, determine your savings “payment.” Be bold, as you can always dial it back a bit later on. Or better yet, keep the amount steady and reduce your overall spending. Then, as your income grows, continue to raise the amount you put away each week.

Choosing the right investment solution

I can help you choose the right mix of investments and help you achieve your unique savings goals. Find out more about the features and benefits of various investment solutions.

Why it’s crucial to start saving now

Setting up a regular, automatic savings plan is an essential part of anyone’s financial health. The sooner you start, the better off you’ll be and the sooner you’ll achieve your goals.

Asset Allocation the Key Investment Strategy

Landing on the right investment strategy boils down to balancing your expectations for growth with your tolerance for taking risks. But even the most aggressive portfolio should gradually take on a more conservative approach as retirement age approaches.

An investment portfolio may contain many types of investments, all of which fall into three main categories.

Risk versus reward

Stocks, or equities, offer the biggest upside for increasing in value. However, it can be a bumpy ride. Short-term dips in the stock market can be steep. Over time, however, the long-term trend is up. Fast and scary price drops in share prices become mere blips over 20 or 30 years.

Risk varies greatly within this category. Some equity-based mutual funds clearly identify themselves as growth funds, taking on more risk in an attempt to find companies with the highest potential. At the other end, some mutual funds aren’t shy about calling themselves conservative. Their holdings focus on well-established companies with solid fundamentals. The potential isn’t as high but investors face lower risks.

Middle ground

Bonds, or bond-based mutual funds, find a home in most portfolios. They’re inherently less volatile – well suited for protecting principals – but offer limited rewards. They’re classified as fixed-income instruments because owners receive regular payouts, which can also be re-invested.

As with equities, growth potential and risk varies widely within this segment. Government bond funds offer quite low risks but returns are also limited. Corporate bonds have greater potential and more risk. Investors comfortable with risk may opt for high-yield, or “junk,” bonds issued by fledgling or distressed companies looking to raise capital by offering high but uncertain yields.

Cold cash

Cash, savings accounts, guaranteed investment certificates and money market funds are the safe haven in a portfolio. The risk of losing your principal is extremely low. Many of these investments are guaranteed and losses in the others are rare.

The biggest risk in parking money in cash is inflation. If the inflation rate is higher than your return, you’re losing money in real terms. However, for people already retired, cash is an important category.


Balancing act

My prime objective is to recommend an asset allocation that makes sense for your situation, including age, need for returns and tolerance for risk. Model investment strategies run the gamut of aggressive growth (all stocks) to ultraconservative (all fixed-income securities such as bonds, as well as cash vehicles).

Willingness to take on risk varies greatly. Some people are very comfortable with risk while others shy away from the stock market completely. This risk profile is a central element in designing the best asset allocation.

  • A 20 – something person may be more risk averse than a retiree but a longer horizon gives a young person the ability to take on more risk.

Beyond risk

Younger investors have a greater capacity to take on risk since their investment window can be 30 years or longer. Indeed, a 20-something person may be more risk averse than a retiree but a longer horizon gives a young person the ability to take on more risk. As a result, a large share of their holdings may be in equities.

Conversely, retirees who fly to Las Vegas twice a year may have little choice but to hold most of their investments in bonds and other fixed-income instruments to both generate income and preserve their capital.

Thus, for any given willingness to take on risk, a portfolio should start shifting to a more conservative approach as retirement approaches.

Needs-based decisions

Asset allocation is also a function of need. I can play a central role in helping determine the amount of savings you’ll need to support your lifestyle in retirement. Many factors may come into play, such as your willingness to downsize your home or expected inheritances.

First, the good news

Canadians, on average, are living longer. Statistics Canada reported in 2014 that a 65-year-old woman should expect to reach 87, up two years from 2001. A 65-year-old man today can expect to live to 85, also up two years.1

Longer retirements may require more savings. This increase in need could require that you incur more market risk.

Custom tailoring

Successful investing does involve some risk. I will assess your individual situation and help you design the optimal asset allocation to meet your goals, and help it evolve over time while staying in your comfort zone.

As you get closer to retirement, proper planning can help ensure the risk built into your portfolio will steadily diminish, leaving you free to start planning the next chapter in your life.