Thinking about retirement

By: Bev Moir

For so much of your life, retirement just seemed like something sitting so far out there on the horizon it appeared to be a mirage. Sure you've been putting money away for that day but you're never sure it's enough. And with all the distractions, drama and diversions of real living, most of us never really sit down to do the math and find out if it will be enough. But trust me. I've been working with investors for over 15 years and I can tell you the day does arrive.

Hi, I’m Bev Moir and I’m a Senior Wealth Advisor and Financial Planner with ScotiaMcLeod.

There is a point in everyone's life when retirement starts to look a lot more real. If you've done a great job saving and investing in your nest egg, you’ve probably already been thinking about how early you might be able to quit your job and move on to the next chapter in your life. But, if you're not exactly where you’d like to be, you might be feeling a bit more stressed – like time is starting to run out on you. The good news is, no matter what your age or the size of your investment portfolio, or even your expectations of what you're going to be doing in retirement, you can always make things better.

As you move into your fifties and closer to retirement, it's a good idea to regularly fine-tune your plans. These are the top earning years for most people. That combined with your kids possibly moving out and, if you own your own home, being close to paying off the mortgage means your expenses are finally starting to decline. This is a great opportunity to ramp up your savings and feed your retirement nest egg.

We're living in a time in history where everything is changing. Kids seem to grow up a lot faster. And older people don't seem to be getting old as fast. And some of the old rules of retirement just don't apply anymore. People are living longer and sometimes they want to keep working. Today’s so-called 'seniors' are much more active for a lot longer than they've ever been in history. You know it used to be said that retirement is when you stop lying about your age and start lying around the house. Now ‘granny’ is just as likely to take up scuba-diving as knitting on the front-porch rocking chair. You might want to spend your golden years on a safari in Africa or sailing around the world. Between longer lives and bigger dreams, you will definitely want advice on whether or not you will be in danger of outliving your investments and your savings.

The first step is to have a look at how much of a nest egg you might need to deliver the kind of income you will want to enjoy in your retirement. And it might be time to fine-tune your plan, especially with the impact of the recent financial crisis. There are stages of investing as retirement comes into view and you finally reach it. In the decade before you get to retirement – now – it's time to get serious.

There is a lot you can still get done to affect what kind of financial shape you'll be in at retirement. It doesn't matter if you've got five years to go or twelve years to go - whatever you get done in those last years is going to pay dividends for a long time to come after you reach the finish line of your working life. Ideally, that finish line is actually the starting line for the best years of your life during which there is still some time for your money to keep growing.

One of the biggest mistakes investors can make as retirement starts to come into view is to start thinking too conservatively by reducing exposure to stocks in favour of bulking up on bonds, GICs and other fixed income investments. Instead, what you should be doing is fine-tuning your plan to make sure you have the right mix of bond and equity exposure – geographically and by sector – in your mutual funds and other holdings.

The next stage is the big event itself, where you make the transition from work and actually retire. It can be a baffling period because there are a lot of changes to consider. All of a sudden you have less control over what you might be able to earn as income and the emphasis shifts to how you can preserve your capital while drawing income from your savings.

Even after you've retired, you will need to revisit your plan regularly. After all, the rules of the game change when the only growth you can count on is what's generated by your investments themselves. Your nest egg will be the one paying your salary from here on, not your employer. And there are tax considerations when it comes to deciding how much and what kinds of assets you turn into cash to fund your lifestyle.

Whatever you have managed to put away, what you want to do is make the most of what you've got. Things that you may want to consider include tapping into the equity in your home, possibly with a reverse mortgage where you maintain ownership but draw out an income. What you don't want to do is become complacent or feel like one option is as good as another when it isn't. And you don't want to be tempted to take on too much risk at a time when the tilt should get increasingly safe.

Of course there are lots of rules that still apply – like taxes and government benefits. You should have a plan that takes into account the changes that occur at various ages, such as the Canada Pension Plan, which can be taken between ages 60 and 70, Old Age Security at age 65, or when you turn 71, specifically converting your RSP into a RIF. The old adage that you can't take it with you is as true as it's ever been. You will want to make sure the tax man doesn't take a bigger piece than he has to when you look to pass on your wealth to help the next generation chase their dreams after you're gone.

So, what does all of this mean? Good news, really. You’re thinking about retirement and, you still have time to either identify and fill in any gaps that might exist or just focus on making your financial situation better. The tools and articles on this site are a great start. They’ll help you educate or re-educate yourself on some of the fundamentals of investing, including understanding economics and how reacting emotionally to ever-changing markets can impact your returns over the long term. In Big Ideas and StayCurrent, you’ll find news and analysis from Scotia's thought leaders that will help you understand what's going on in the market and the economy.

Then, contact an advisor who can really help you make sure you’re on track.