When Can I Retire

When Can I Retire? Andrew Allentuck

Chapter 1 Retirement: The Destination and the Trouble of Getting there

What keep people working is fear of poverty. A survey in 2007 showed that 44% of respondents said they were not worried about outliving their financial resources while 33% said they were worried. The remainder, presumably, did not care enough to have a firm opinion.

Another survey in 2007 shows 2/3 of Canadians now in their early to mid-forties will have difficulty as retirees paying for basics unless they increase their rate of savings or are prepared to keep working past age 65.

Life expectancy and Health Expectations - Planning for retirement is more than about just money, it's also about health. Life expectancy is going up but health expectancy is not keeping up.

Risks for the future - To minimize /control spending -
1) establish a way of life that minimize unexpected and large bills, like manage upkeep to avoid major expenses. Small repairs are often less costly than repairs deferred until breakdowns happen.
2) avoid debt as it can threaten financial security
3) unexpected cost - long illness and hospitalization, sue for an injury, etc

How financial planners see Retirement - the earlier you retire and the more completely you retire, the greater the odds of winding up poor at the end of life. Financial planners add 5 years to the conventional life expectancy of 77 for men and 82 for women and then assume in their calculations. What assets to buy - stocks, bonds, real estate, cash and commodities. It is not enough to stay in cash to catch the inflation. Diversification helps to minimize risks and improve return. It is always good to educate yourself.

Chapter 2 - The Big Gamble:Setting Up a Retirement Plan
The decision to retire is one of the biggest gambles, especially when you are retire young. If it turns out badly at the end, it may bot be possible to correct the mistake.

Challenges for planning - many of the things we want to predict are really not readily knowable.

Uncertainties of Retirement
1) Value of Assets - House, investments, currency, etc
2) Returns from savings and investments - volatility of the market
3) Health and costs - will the government continue to pay for it
4) Reliability of income - CPP, OAS
5) The state of your life - how is the lifestyle
6) The state of the world
7) Your state of mind about retirement
8) Employability
9) Inflation

Timing Retirement - time creates two very distinct meaning in estimating how much money one needs to retire.
1) Money to cover the length of the retirement period
2) Time to save for retirement

Large potential retirement spending
1) Shelter - mortgage, property tax, maintenance
2) Social spending - entertainment, travelling
3) Taxes
4) Medical, dental and drug expenses - depends on health
5) Other discretionary spending

Life is more than money. But people who are going to be the most free to enjoy life will be those who have no substantial debts and littel or no exposure to the cost of rising interest rates. They will be people who have set their incomes in retirement to be adequate for their expenses and who have financial reserves for unexpected cost. Whatever plan is devised, build in wiggle room - that means extra income and extra wealth. Achieve cash flow in excess of expenses and add a cushion for the unexpected. When you have that, you are ready to retire.

Chapter 3 - The Decision Point
Planning to retire is both a matter of mapping out cash flow and expenses for the future and hope that what you know today will still be true and right tomorrow. The longer the planning period, the more that can go wrong.

Building income security:
1) annuities - fixed amount of money every month
2) dividend paying stocks
3) government bonds
4) GIC

Reasons Not to retire
1) Lack of incentives - meaning to life
2) Aloneness
3) Loss of identity
4) Giving up your status
5) Losing perks - financial benefits
6) Loss of financial safety nets
7) Lack of pension
8) Cost of replacing job-related transportation and accommodation
9) Can't afford to retire
10) Concern about risk

Reasons to Retire
1) You can afford to quit work
2) You have to go - compulsory retirement
3) You want to be near friends and family
4) You have the opportunity and desire to take a buyout
5) Your pension and savings are so big that you might as well retire
6) You want to reduce stress
7) You want to use retirement assets already in place
8) Health concerns

Chapter 4 - Budgeting for the future
Financial planning is as much an exercise in imagination as it is pencil work. Retirement may be a continuation of a way of life or it may mean living a different life altogether.

Plan for retirement in stages because life will change:
- below 65; go-go stage - active and spend more in travelling; fear of running out of money
- 65 to 75; slow-go stage - normal spending will decline but health costs may rise
- over 75; no-go stage - less mobile but don't know how long it will be

A balance of components - the amount of spending depends on style of retirement. The more money you have for retirement, the lower the fraction of it you are likely to spend. The wealthy can diversify their assets more easily than the not-quite-rich. Diversification lowers their risk in any one investment and increases their chances of their fortunes growing larger.

Controlling expenses in Retirement
If you find expenses are greater than you had foreseen, you hae to cut discretionary spending (travel, entertainment, etc). With more time to spend, you can try thinking of value for each dollar (get bargain sales/careful shopping/looks for best deals).

Emergency funds
Having a cash reserve make a differnce between living as one planned. 3 to 6 months income for emergencies to avoid borrowing to pay unexpected bills.

Review and Sensitivity
Good plans have to be changeable. Sensitivity component to review:
1) Give up driving
2) Downsize of shelter

Chapter 5-6: Where will the Money come from?
1) Public pensions - OAS, GIS, CPP, QPP
2) Employment-based pension - defined benefit and defined contribution plans
3) Individual saving plans - RRSP, LIF, LIRA, LIRIF
4) Insurance-based pension - life policy
5) Tax-free savings account

Chapter 7: Managing Retirement Assets
One Basic Fact - If it goes wrong, there is less time to make up for losses

Assets management is really a form of risk control. As you grow older, the value of risk reduction becomes apparent. The reason - there is less time to make up losses if an investment sours. One cannot predict how any stock or even any sector may perform in a certain time period, so diversification among many stocks, sectors, and assets types is essential. A well-diversified portfolio may have stocks, bonds, and perhaps some real estate. As well, the investor has to be aware of tax issues that affect cash flow.

Chapter 8: What are you going to do with all those years?
Retirement at any age requires 3 things - 3M
1) Money - enough of it
2) Motive - a reason for retiring; and
3) Meaning - a sense of fulfillment in the time away from work

Useful retirement plan should be:
1) Fulfilling - you need a desire to do things and a plan to do them in succession as you age
2) Affordable - a life of cruising works only if there is a budget to support it
3) Engaging - the retirement plan should provide a way to make meaningful use of the free time you will have on your hands
4) Adaptable - if one plan does not work out, there should be another to take its place

Another option is to live outside Canada.