When you hear the word retirement, what do you think of? Is it the closing of one chapter and the opening of another? Some might call it the best days of your life. In many cases, retirement can be the best days of your life but unfortunately for some it is disappointing. Really, retirement might be thought of as a continuum between two extremes: the best days of your life and the worst days of your life.
Someone once said, “Retirement is when you have too much time to do nothing”. Recently one of my clients described retirement as “the time when you never do all the things that you intended to do when you'd have the time.”
According to Gail Val Oxaldes, financial author and columnist, “Retirement used to be the best time of our lives. That image has been blown apart by the reality that, for many people, with retirement comes illness, poverty, and loneliness. But it does not have to be that way. To have a successful retirement, we have to plan. Afterall, to be successful at anything, some planning is required.”
Retirement is one of the most important crossroads we face in life. It involves a fundamental change in lifestyle – one that calls for a totally new outlook on how we approach each day. All our lives we have been conditioned to think in terms of saving for our retirement years. Society has created this mystique about this time in our lives when we magically transform into different people with different lives when really we are the same people with different day to day lives.
Retirement is supposed to be the ‘golden years’ of our lives. Ted Roosevelt said it best; “Do what you can, with what you have, where you are.”
Times are different
Retirement used to be simple. You retire at age 65. You live off your pension, your government benefits and then supplement income with your RRSPs. The good news is GICs were paying in excess of 10% and investment decisions were easy.
Today, it’s not that simple. Interest rates are significantly lower. Tax rules are constantly changing. Social benefits are getting squeezed. Life expectancy is increasing. Retirement is happening sooner. Pension plans are becoming dinosaurs. There is more on us as individuals to self-fund retirement. And to top it off, retirees today are facing one of the worst bear markets in history.
For the last 10 years as interest rates have fallen, investors have slowly moved renewing GICs into mutual funds and markets in hopes of earning better returns despite more volatility. For a long time, this equation was working – more risk equals better returns. Today, these same conservative investors are sitting with their retirement wealth in mutual funds wishing they were in GICs even at 2% to 5%.
The biggest problem with retirement is the issue of uncertainty. We are not sure how long we are going to live. We need to balance living for today while we have the physical capabilities to enjoy the fruits of putting money away versus keeping money just in case we get ill or live too long. We are also uncertain about the future of the markets. We need to balance getting higher returns without taking too much risk.
The bottom line
It’s a period of transition. You must change the way you think and act about money. While you were working and saving for retirement, you did not have to touch your savings. In retirement, it is now time to spend the money you saved but for many, it’s not just that easy. Those that were good savers sometimes have difficulty becoming spenders overnight. Those that are spenders have to watch the potential of running out of money too soon. Whatever the case may be, there are often many different emotions at this time of your life.
While retirement may mean different things to different people, there tends to be some very common financial goals.
- Maximize income
- Maintain capital
- Manage risk
- Minimize tax
In the next few weeks, I want to spend some time exploring the emotional and financial aspects of retirement.