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Learning Centre

What is Retirement Planning? (October 2004)

by Sean Quinlan, CFP

Retirement planning involves a qualitative process through which an individual(s) determines what they need to do over their working years in order to realize a predetermined standard of living in retirement. The objective is to see that you retire "to" something, not just "from" something. To accomplish this, one must put some thought into converting the "retirement vision" into some quantifiable directives. The three main considerations should be:

1. At what age would I like retirement to commence?
2. What will my lifestyle expenditures be (i.e. how much money will I/we need to meet basic necessities plus enjoy the extracurricular activities desired)? And how will my expenditure change throughout the retirement timeline (e.g. second career, travel in the early years, long term care)?
3. How long is the retirement period estimated to last? (i.e. life expectancy)

Once you have established these numbers to the best of your ability (remember, nothing is carved in stone here; it's just a starting point), it is time to find a Certified Financial Planner (CFP) professional. Talk to a few of them if need be and find one you like. In all cases, request a written engagement letter from any prospective planner you meet with outlining the planner's duties and fees.

After selecting the planner, the process will include:

1. Gathering all your relevant data (assets, liabilities, pensions, etc.) and discussing your goals.
2. The planner will then assess your current financial situation and identify any potential problem areas that would impede you in meeting your objectives. Strategies will be developed and conveyed via a written draft plan for discussion purposes.
3. A final plan is then decided upon and the strategies implemented.

The retirement planning process does not stop here however. Part of that written engagement I mentioned earlier should include the planner monitoring the plan and a schedule for periodic reviews of the plan with you, as required. It is important to realize that the younger you are, the more likely your retirement plan will change over the years due to changes in career, family, wealth, personal goals, etc.

As well, unexpected health issues can interfere immensely. Expected health care issues should be examined as well, such as the potential need for long-term care during your latter years. Average health care costs begin to increase substantially at age 50, more than doubling by 65 and continue to increase dramatically until death. Your CFP professional will include risk management as part of your overall retirement plan and make sound recommendations thereon.

For couples, it is important to go through this process together, even if one spouse is the designated financier of the house. At the root of your financial plan are the goals and aspirations as a "couple." Sometimes it is necessary to adjust the retirement goals and/or adjust the resources being committed to attain the goals… these decisions should be made together.

Retirement planning doesn't cease when retirement begins. Post-retirement planning will examine the most tax-efficient use of available proceeds during retirement and which investment vehicles (RRIFs, LIRAs, LIFs, Annuities, etc.) are best for your situation. As well, changes are often required to investment asset allocation as the need to generate income from investable assets increases.

Why have a financial plan? Peace of mind is the main reason. Wouldn't it be a shame to spend your entire working life with a retirement vision, only to retire to a reality far less appealing? The only thing worse would be finding out that you indeed did have the resources available to create a more fruitful retirement, but now it's too late to change the past. Couple this with the uncertain future of certain government programs and some pension plans, and it becomes evident the responsibility is yours to assure the retirement lifestyle you have always dreamed of.

When should you start planning for retirement? Right now!

Sean Quinlan is an Investment Advisor and Financial Planner with PWL Captial Inc. in Ottawa, ON. He can be reached at (613) 237-5544 x309 or by e-mail at squinlan@pwlcapital.com.