For most of our working lives, retirement can feel like a distant dream. But a sudden and unexpected change in the latter stages of your career – a department restructuring, a health issue, a buyout package – can mean that, ready or not, your retirement is happening right now. In a 2017 AARP survey, 47% of respondents reported retiring earlier than expected. Earlier research by the Ontario Securities Commission revealed similar results: Well over half the Canadians over age 50 surveyed said something outside their control had affected their retirement plans. Research by Sun Life Financial backs up this finding, with less than a third of retirees surveyed reporting they had left the workforce as expected:
For whatever reason, the thought of retiring before you had planned to can be dismaying.
But don't panic: You've been getting ready for this your whole working life; it's just the timeline that's moved up a bit. What’s your first step? Gather all your relevant documents and book an appointment with your advisor. By asking a few key questions, your advisor can help you talk through the transition and develop a plan for moving forward.
Based on my retirement savings, how much will I have to live on?
You and your advisor will want to work through your income sources and take a financial inventory. After all, a retirement portfolio is typically made up of many pieces: government benefits, workplace benefits, income from a registered retirement savings plan (RRSP), part-time income, home equity, etc. In a nutshell, you want to have enough on hand to pay for the lifestyle you choose, while maintaining your ability to draw an unreduced Old Age Security (OAS) pension if you can. But drawing down your savings sooner than expected may mean you’ll have to make some trade-offs.
You'll also want to lay out a plan for what to do with your RRSP if you have one. For example, it may be tempting to convert it to a registered retirement income fund (RRIF) right away, but depending on the situation it may be wise to wait. (You don’t have to decide what to do with your RRSP until the end of the year you turn 71.) If your employer gave you a package to encourage you to retire early, you’ll want to get some advice on that, too. A seasoned advisor can crunch the numbers and show you options to help maximize your retirement income and keep your expenses low.
How does the stock market affect my retirement?
With retirement only weeks or months away, you may be concerned about market volatility and making sure you can hold onto the gains you’ve made in your investments. Your advisor can help you develop a strategy with the level of risk that best suits your situation, since you’ll likely need to start drawing that income sooner than you originally expected.
Your advisor may, for example, suggest a portfolio stress test. This allows you to see in vivid detail what might happen if your investment returns drop during your retirement. Another option if you want to reduce or eliminate exposure to stock market fluctuations is to use part of your retirement savings to buy an annuity. Life annuities give you a guaranteed monthly income for as long as you live, which provides some cushion during market downturns.
How much should I spend in retirement?
Everyone’s vision of the perfect retirement is different. And it will likely take you a bit of time to figure out not only what you really want out of these years, but also how much you will need for your new post-employment lifestyle.
Embrace that transition. “Instead of accumulating savings, now you are in a period of de-accumulation and preservation of assets. It can be hard to adapt,” says Scott Evans, an advisor at BlueShore Financial in North Vancouver, British Columbia.
The good news? “You will almost certainly be spending less than you did while you were employed, since you won’t be commuting to work each day,” he says. “You’ll have no lunches to buy and no work-friendly wardrobe to maintain.”
Work with your advisor to attach numbers to some of the things you want to do in retirement. That will help you find ways to shift resources around to best serve your new needs and goals.
Do I need to change my will, insurance policies or estate plans?
As we grow older, we need to ensure everything is in place in case of a serious illness or injury. This is especially important if you plan to spend long periods of time out of the country, as many snowbirds like to do. As a rule of thumb, it’s a good idea to review your will , beneficiaries, medical directives and power of attorney approximately every four years, or whenever you have major life changes. But keeping track of all that paperwork can be hard work. Your advisor can help you change the beneficiaries listed on your pensions, insurance policies and investments. See your lawyer to update your will and power of attorney.
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- A guide to making your money last for generations
What should I be asking my employer?
Your defined-contribution or defined-benefit pension plan and your workplace RRSP are likely integral parts of your retirement financial strategy. But it’s wise to think beyond those assets. Some employers offer their retirees extended medical and dental benefits, or an option to keep workplace life insurance, especially in the case of loss of employment due to downsizing.
“Your advisor can help you determine whether some of these options are competitive or if a private policy is better,” says Evans. “If you are lucky enough to have a defined benefit pension plan, there may be some features to consider, such as indexing it to inflation or making it payable to your spouse after your death.” Your advisor can help you weigh your options.
Successfully funding your retirement isn’t about checking boxes on a standardized list. It’s about going on a quest to understand what you have, what you want and the various rules and regulations that frame your options. While you may not have expected to begin the process so soon, you can develop a plan of action with the help of your advisor. The sooner you ask the right questions, the sooner you can get answers and turn that valuable information to your advantage in retirement.