Retirement planning is multi-dimensional. Consideration has to be given to both the quantitative and qualitative factors. Framed another way, it's almost like a tale of mathematics and emotions. Both are equally important as they guide you through the next phase of your life. But they impact each other in different ways, and as a result both have to be carefully considered.
Quantitative analysis is the side many planners and advisers focus on. It's the mathematical approach to figuring out how to plan for retirement financially given various assumptions such as savings rate, rate of return and income requirements. Let's spend some time focusing on the quantitative factors and some things to consider.
When approaching decumulation and doing cash flow planning, it's prudent to keep tax efficiency in mind. Given the various types of savings vehicles like RRSPs, TFSAs, non-registered savings: do you know which one you should draw from first? When you layer on top of that being a couple with different types of accounts in varying tax brackets, you start to see the role an adviser can play to help you figure out the logistics of funding your retirement. There is a lot of complexity.
An adviser can run some cash flow projections for you and show you how to minimize the overall "family" tax bill by drawing from different investment vehicles at various times. Your adviser can also recommend the most appropriate investments for your retirement years by taking into consideration things like risk, tax efficiency and income producing potential. In addition, there could be other vehicles such as annuities or segregated funds that could make sense for you.
Now let's consider the qualitative, softer issues. Start to take a look at your retirement preferences once you close in on the last 10 years before retirement. Where are you going to live in retirement? Do you plan to downsize, and if so, how much will that add to your nest egg? How are your lifestyle requirements going to change? It's worth considering the impact these decisions will have on your retirement plan financially.
The qualitative side of retirement does not get the attention it deserves. My experience is that a surprising number of couples don't talk about what their aspirations are for retirement and what retirement looks like for them as a couple. One partner might want to retire to a farm and live off the land while the other wants to downsize and stay in the city. It's so important to have this conversation and visualize what you want to do in retirement as a couple and as an individual. This can start in the years prior to retirement by ensuring both partners have cultivated interests, hobbies and a social network outside of their careers. When work comes to a screeching halt, there are a lot of hours to fill and this can add pressure personally and to a relationship. These decisions can also impact how retirement looks financially.
A great lead-in to this discussion is this: "If you had all the time and all the money in the world, what would you do?" The answers that trickle out help people think outside the box while getting to the core of their aspirations. What makes you tick? What have you always dreamed of doing outside of work? For some, it's giving back to the community, going back to school, travelling abroad or getting serious about athletic interests. Just as there are two sides to every story, retirement is multi-dimensional. Quantitative and qualitative factors should be carefully thought through as part of every retirement plan.
This article is provided for general informational purposes only and should not be considered specific financial advice. For advice specific to your circumstances, please speak to the appropriate tax, investment or insurance adviser.
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