How do you know when it’s the right time to retire?
Retirement readiness is not really tangible. If you think about it, we use dates, ages. rules and money to make our target retirement date more tangible. For example:
- In the pension world, people will say, I’m ready to retire because I have a full pension or I have reached my 85 factor
- We sometimes use the rules around Canada Pension Plan and Old Ages security to define retirement like moving the age of eligibility from 65 to 67
- And in the financial world, we talk about how much money do we need in order to retire.
After being in the retirement planning field for over 25 years, I believe true readiness is not always tangible. I’ve seen people with good pensions and people who have saved a lot of money but are not really ready to retire. Sometimes it’s because they love their jobs. Other’s hate their jobs but don’t have a life to retire to. Some people are on the fence. They are ready to retire but worry about being bored or missing their friends from work
Sometimes readiness has more to do with instinct, feelings and lifestyle than it has to do with money.
Related article: Retirement planning is about more than just money
Don’t get me wrong, money is clearly important to retirement readiness but it’s important to understand the difference between retiring FROM something and retiring TO something. Often the people that are MOST ready have planned a life to RETIRE TO!!
Could the economy have people thinking early retirement and what might that mean, factors around retiring a bit sooner than you might have thought?
Absolutely. Every retirement plan includes things you can control and things you can’t control. In our retirement planning workshops we call these things curveballs. You can have a retirement plan all worked out and then a curve ball is thrown at you and your plan.
The economy now is a good current example. How many people here in Alberta were forced to retire sooner than they wanted or though because of the change in the economy here? Some people were planning to work part time in retirement but with unemployment at a record high, there may be fewer opportunities.
And how about the stock market? How many people do you know that were planing to retire and then the stock market took a 15% to 20% drop? And how many of these people decided to delay their retirement as a result?
Related article:Falling stock markets affect retirees the most
People are living longer, what might you caution people to really look at when it comes to savings to make sure they are on firm footing?
It’s really about the assumptions in a retirement plan. If you think about there retirement planning calculators, you INPUT a bunch of number and magically you get the RESULTS. for example, “You need 2.8 million dollars in order to retire.” When it comes to these calculators, it’s important to understand, the OUTPUT is only as good as the INPUT. And a lot of the INPUT is a set of ASSUMPTIONS (otherwise known as GUESSES). If you don’t like the output then you need to revisit the INPUT.
I tell people all the time “When it comes to understanding your retirement plan, spend more time understanding the assumptions than the results. Its the assumptions that determine the results. In terms of key assumptions, it’s important tolook at things like:
- life expectancy
- rates of return
- withdrawal rates
Is there a middle ground around part-time work, scaling back or returning in a few years which people might now consider?
This is probably one of the biggest trends I see in retirement. Retirement is no longer about NOT WORKING. More and more people are wanting to work in retirement, planning to work in retirement and being pulled into work in retirement. There was more opportunities than ever to work in retirement. In fact the new terminology that is not so new anymore is the idea of planning a PHASED RETIREMENT or a TRANSITIONAL RETIREMENT. Personally, I think it’s great and I think a lot of people are finding success with this idea in their retirements.
At a certain point you do have to draw on your RRSP so how does that factor in?
The rules are that you must start drawing income from your RRSPs by December 31 in the year in which you turn 71. you can draw it sooner but not later. My suggesting has always been to start a withdrawal strategy as soon as you retire. I’ve seen too many people wait to convert their RRSPs to income at 71 usually for 2 reasons: They did not need the money or they did not want to pay the tax. For a lot of people, waiting till 71 to use your RRSPs for income defeats the purpose of the RRSP and that’s to make your retirement the golden years. Sometimes the withdrawal strategy is because of lifestyle but sometimes it based soley on a tax strategy.
Related article: Developing a RRSP withdrawal strategy
What would you advise boomers thinking about retirement to consider?
Have a plan. A plan that includes both lifestyle issues and money issues. Too often the retirement plan focuses on the financial issues. remember that retirement is about more than just money. You can have all the money in the world but if you don’t know how to spend it or have good people around you or you don’t have your health, what good is the money? Remember the point of money is to buy you a life and that retirement is really about living the golden years.
Related article:Three steps to a great retirement plan