When working with clients, we’ve found that families paying off school debts etc. are very real reasons Canadians have difficulty saving and planning for retirement. A recent survey found that nearly 80% of households admitted not saving enough to fund their retirement.
While financial advisors can offer solutions to help people prepare for the retirement they want, they can’t force them to take action.
The big difficulty is uncertainty, as people just don’t know, or can’t envision, what their life in retirement will be like. General ideas abound – more golf, less work, no work, spending time with family, or traveling. Those are great ideas, but they are not a lifestyle.
Without a personal vision of retirement, people have no real knowledge of the range of choices open to them, let alone the actual choices they may wish to make. And they have no effective way of knowing what their financial needs in retirement will be.
Here are a few ideas that might help in creating a retirement vision:
Taking stock of income and expenses is the first step in creating a retirement vision. For retirement, you have to project these inflows and outflows forward. Asking yourself about your current lifestyle will give you a good understanding of what you will need in retirement. Some expenses will decrease but others such as additional travel may need to be increased. Include expenses that don’t recur every month or even every year, such as major house repairs or renovations. It is also essential to remember that out-of-pocket health expenses rise dramatically with age. The income exercise involves envisioning ways to deal with these expenses on a projected retirement income and thinking through the income constrained choices you may be required to make.
Talk to the retired people you know, as most retirees are happy to talk about their lives and experiences.
Try a trial retirement. For a couple of weeks or a month, live as though you were retired, doing only the activities you expect to do in retirement, recording how you feel about the experience and keeping track of expenses. If you have always dreamed of retiring to a small town, this would involve living in a small town for a month to get the flavor of how a small community functions in comparison to a large city. The theory is that, the only way we really understand a new or different experience is to live it. Think of the fascinating books that have been written by authors who put themselves into an utterly new and different environment in order to understand the feelings and attitudes of people who live in that setting.
This technique may not work for everybody. More than one trial may be needed. But for some, it will be a beneficial experience. And it will result in new and more relevant thinking as to how much must be saved and invested in order to achieve the retirement you want and needs. You might even find that you don’t want to retire at all!
Retirement savings rates, accumulation rates, withdrawal rates and retirement income replacement rates are all important tools in the retirement planning process. But they need a foundation… a vision of retirement that’s your own.
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