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Retirement Planning

Eleventh Hour Planning

November 24, 2006

Due to life’s circumstances and sometimes procrastination, some of us delay planning for retirement until our early 50’s. Here is a hypothetical example of Bob and Mary and how they are working towards achieving their life planning goal of having enough money to fund their retirement.


Bob and Mary are in their early fifties. They’ve spent the last 25 years raising 3 kids and paying down their mortgage, which they paid off last year. They had started a small savings plan several years ago, but it was drained by expenses that go along with family life - cars, home repairs, university tuition, etc. As their home is paid in full, they are asset rich. They thought that their financial concerns would be over once they paid off their mortgage, but they still seem to be living month-to-month focusing on eliminating credit card debt and upgrading their fridge and stove. They are concerned about not having saved any money for retirement - which is about 10 years away. Bob and Mary have no work pension plan. What can they do?

3 basic choices are available. Bob and Mary can try to build financial assets quickly through an investment program, they can work longer, thus postponing retirement and building a bigger nest egg, or they can decide to do with less during their golden years.

Let’s examine all 3 options.

Choice #1: Build financial assets: Start Now!

The cornerstone of any financial plan is a cash flow statement, otherwise known as a budget. Bob and Mary listed all their monthly expenses. They determined that eliminating some discretionary items (eg. Bob had a habit of buying a large double-double coffee at Tim Horton’s twice a day – by reducing it to once a day, they would save $338 a year) and using the additional money they had been using to pay off their accumulated credit card debt and purchasing household items, they found $700 a month. By putting away $700 in a medium risk RRSP @ 6%, Bob and Mary should have $114,715 in 10 years. Another option for Bob & Mary to consider would be to borrow against their home equity to fund financial assets. This option, known as leveraging, increases their financial risk and the potential reward. Bob and Mary worked hard to pay off their mortgage, and have decided that incurring debt to save for retirement was not an option for them.

Choice #2: Retire later

Bob and Mary’s dream was to retire in their early 60’s and do some traveling. Bob works as a journeyman electrician and remains in good health. By postponing retirement to age 65 and maintaining a monthly purchase plan of $700 for an additional 3 years (from 10 - 13 years) Bob and Mary would increase their nest egg to $164,813 assuming a 6% return. To help out, Mary, a homemaker, has decided to work parttime in retail. Bob and Mary have decided to take a 25th anniversary Panama cruise next winter. They reason that given their good health and interests, they should start traveling now rather then waiting for retirement. To help finance their vacations, they plan on using their tax refund of $3,000 annually made possible due to their $700 a month RRSP contribution. Bob’s job skills are very much in demand as the shortage of qualified trades’ people is expected to continue. After age 65, the possibility exists for Bob to continue to work part time or do odd jobs. In fact, 41% of U.S. retiree’s supplement their pension income with work income, with 14% of this group saying they will never retire according to the American Association of Retired People (AARP)

Choice #3: Doing with less

With the combination of government benefits ($1,700) and drawing down their nest egg, Bob and Mary’s projected income in retirement is expected to be $2,300 a month. This does not include part time income that Bob may generate in retirement. This amount will fall short of the suggested 70% of net income (income replacement ratio) that Bob currently makes. Bob and Mary realize that they may have to make some difficult financial choices in retirement by analyzing their needs and wants. For example, rather than spend 3 months in Hawaii each year, they could buy a travel van and have less expensive vacations. They also realize that as they age, they will probably spend less, however the cost of health care could more than off-set the decrease in expenditures. Bob and Mary are also considering down-sizing or selling their home in retirement. The proceeds from the sale of their home could fund their retirement and any remaining balance could provide an estate for their children and favorite charities. After analyzing all three choices, Bob and Mary have decided to put away $700 a month into an RRSP, retire later if Bob maintains in good health and possibly do with less in retirement. Bob is also open to working part-time during retirement to supplement their income.

Eleventh hour life planning can be done – the key is to start now.


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