52 Ways to Wreck Your Retirement

...And How to Rescue It

Tina Di Vito

• Publisher: Wiley
• Year: 2012
• Print ISBN: 9781118076095
• eBook ISBN: 9781118078419
• Edition: 1
• Topic: Personal Development
• Subtopic: Personal Finance

Retirement planning isn't something that happens at a specific point in time or at a specific age - we are all affecting our retirement plans every day with every decision we do or don't make. Canadians are living longer, and the average retiree in the future may have as much as 30 years of retirement to plan for, and there are many simple things that will impact our eventual retirement life.

52 Ways to Wreck Your Retirement identifies 52 things we do that could wreck our retirement, explains why it puts your retirement at risk, and provides the strategy to correct the mistake, or better still, avoid it entirely. The book is organized under several key areas of the planning process, including:

• Starting to Plan for Retirement
• Mistakes around Investing
• Mistakes around Debt
• Saving for Retirement
• Pensions
• Living in Retirement
• Spending in Retirement
• New Realities about Retirement

52 Ways to Wreck Your Retirement is not a feel-good book about how wonderful retirement will be or an alarming fear-mongering book about dying broke, nor is it a get-rich-late-retirement solution. Quite simply, it is an easily-accessible and practical guide written for Canadians of all ages that gives you the tools you need to better manage the financial and personal aspects of your retirement.

Part 1

starting to plan for retirement

Chapter 1

Thinking You Have a Retirement Plan When You Don't

If you don't have a good understanding of what a retirement plan consists of, you may think that you are already doing everything you need to do to prepare for retirement, when you're not.

There is a widespread lack of understanding about what retirement planning is. The term retirement plan is often used loosely to describe very different things, such as a target retirement date, retirement savings, and investment strategies. There are many facets to retirement planning. It is important to understand the interconnected elements of a retirement plan, and then develop strategies to minimize your risks while maximizing the outcomes to achieve your goal — retirement. Having a retirement plan does not mean just making RRSP contributions or participating in a company pension plan. These actions represent just one facet of a retirement plan — saving for retirement.

what is retirement planning?

Retirement planning includes both lifestyle and financial considerations. It is the “what” and the “how much” of retirement — what you want your retirement to look like, and how much it will cost. The process involves selecting a potential retirement date, reviewing your current financial situation, identifying saving gaps, and building a plan to achieve the desired outcomes.

what is a retirement plan?

A retirement plan is a living document! It is just that — a PLAN. It can change from year to year, depending on your circumstances. It is a thoughtful organization of strategies and actions that will combine to help you reach your retirement goals.

A complete retirement plan consists of two distinct parts that I like to describe as the saving phase and the spending phase. The saving phase is made up of all the steps you need to take to get you to your retirement, and the spending phase is all about what you need to do to make the most of your retirement years.

During the saving phase the focus should be on growing your money, managing your spending, paying off debt, and so on. The overall goal is to accumulate enough money so you can live the lifestyle you want during retirement. On the other hand, during the spending phase the objective is quite different. Rather than focusing on saving for retirement, the goal here is to make sure your money will last you all through your retirement years.

starting the retirement planning process

What does retirement mean to you? This is very much an individual thing and no two people's retirements will be the same, so don't focus on what others believe retirement should be like — think about what it means for you. Think big picture first and consider how you want to live this part of your life and what your objectives or goals might be. Your views will likely change and become clearer the closer you are to your retirement. Regardless of how many years you are from retirement, it's important to think about:

• when you might want to retire
• how you might be spending your time

Let's take a closer look at each one of these considerations.

When do you want to retire?

This is a very important consideration, because this is the starting point in developing your retirement plan. Your age at retirement can affect how you will spend your time and how much money you will need to save. Don't worry if you change your mind about the actual date along the way; that's completely normal and is sometimes necessary to make the plan work. I'm not a big believer in having a set retirement date, but for planning to begin, it is important to think about when retirement might begin. In fact, virtually all retirement planning tools and calculators will ask you to select a retirement age as a starting point for planning.

How will you spend your time?

Sounds simple enough, but many people can't say what they'll be doing next week, let alone in 10 or 20 years. However, it is important to paint a mental picture of your future when creating your retirement plan. Start by thinking broadly before focusing on the day-to-day. Think about your hobbies, your aspirations, how much time you want to spend with your family and friends, and where you are planning to live. You need an idea of what you are saving for before you can come up with a plan to get you there.

planning your finances

Once you know what you are saving for, the next step is to determine how much money you'll need to accumulate during your working years to fund your desired retirement.

• Estimate how much your retirement will cost.
• Estimate your retirement income.
• Calculate how much you need to save.

How much will your retirement cost?

The farther away you are from retirement, the harder this might be to do. As a result, many people use an estimate based on their cost of living today. A common rule of thumb is to aim to replace approximately 70 to 80% of pre-retirement income. For lower income earners that replacement ratio might be closer to 90%, and for high income earners a replacement ratio of 50 to 60% might be sufficient. Keep in mind that some expenses will disappear upon retirement, such as work-related costs and mortgage payments, and others may arise, depending on your lifestyle. But remember, there is no one-size-fits-all approach to this. Therefore, knowing what you want to do in retirement should help you make a better estimate of how much money you'll need.

What will your retirement income be?

To determine how much you will receive as retirement income, you need to identify the income sources, such as government pensions, employer pensions, personal savings, etc., and estimate how much you will receive from each source. Keep in mind that a part-time job or a hobby can be another source of retirement income. Once you understand what your retirement income and expenses will be, you will know whether there is an income gap that needs to be filled.

How much do you need to save?

If there is a shortfall between your income and your expenses, you will need additional personal savings to fill the funding gap. The size of the gap will determine how aggressive your saving strategy needs to be. For instance, you may have a relatively small personal savings target if your total retirement income will cover most of your expenses. However, if your retirement income will cover only a small part of your retirement expenses, you will likely need to save more aggressively, unless you are willing to make some adjustments to your desired retirement lifestyle. Another consideration that will help determine how much you need to save is how long your retirement savings will need to last, because that will dictate how big your retirement nest egg will need to be.

value of a retirement plan

Ultimately, you have a choice as to how you approach retirement planning. You can play an active role, and be in control, or take a laissez-faire approach, hoping that things will just fall into place. Either you visualize your desired retirement and follow a roadmap to fund it, or you leave your retirement life to chance and let your savings dictate how you will live. Which alternative would you prefer?

rescue it!

To develop a retirement plan, follow these steps:

Start thinking about what your retirement might look like.

Think about when you might want to retire.

Identify the sources of retirement income you will receive, including pensions.

List your expected expenses/costs.

Do a financial projection to see how much your savings will grow to by the time you reach retirement.

Determine if your savings and pensions will be enough to pay for the kind of retirement you want to have.

Now you have the start of a retirement plan.

Chapter 2

Being Fooled by Feeling and Looking Younger than You Are

You may look and feel young, but don't let that fool you into thinking you have lots of time to plan and save for retirement. As the saying goes... time flies when you're having fun.

How old are you right now? How old do you feel? How old do you look? How old do you tell people you are? In the past, our age defined us rather rigidly. The terrible twos, the preteen and teenage years, adulthood, middle age, and old age. These days our age no longer defines who we are or what we are capable of doing. Some say the new middle age is 50. There is a different state of mind around aging: we look, feel, and act younger than our biological age.

One thing is certain: seniors today don't look like seniors from previous generations. Look at some of your old family photos. Wow, was Uncle Bob only 40 in that picture? Why did everyone look and act so old?

These days the baby boom generation (those born between 1947 and 1966) is redefining what aging means. Even seniors are defying the age barriers: in June 2011, at the young age of 79, India's grand old marathon man Ashis Roy completed his 110th marathon.

So how could feeling and looking younger wreck your retirement? One simple word — procrastination. If you feel younger than you are, you don't feel any sense of urgency about planning or saving for retirement. How can you possibly be motivated about something that is a long way away?

when should you start saving for retirement?

The best time to start saving for retirement is when you first start working. In other words, the earlier the better. But when you're young, you don'...

Table of contents

• Cover
• Title Page
• Copyright
• Introduction
• Part 1: starting to plan for retirement
• Part 2: mistakes around investing
• Part 3: mistakes around debt
• Part 4: saving for retirement
• Part 5: pensions
• Part 6: living in retirement
• Part 7: spending in retirement
• Part 8: paying too much tax
• Part 9: new realities about retirement
• Part 10: protection planning
• Part 11: not asking for help
• Acknowledgements
• About the Author
• Index