Periodic insights from our Investment and Private Client Teams on a broad range of investment and advice-related topics
As a wealth advisor, I talk with people almost every day about their retirements, and usually, they are most interested in the numbers. How much money should they save? Which investment vehicles are right for them now and in retirement? How can they plan accordingly to leave their children such-and-such amount? Those are all good questions, and I’m happy to work with my clients to find good answers. But before we can do that well, a more fundamental question needs to be asked and answered, and it’s this: What kind of retirement do you want?
Let’s unpack that a little bit. When you are planning for retirement, you have a variety of things to think about beyond the numbers. How do you want to spend your time? Where do you want to retire? Who (if anybody) will you spend your proverbial “golden years” with? Too many people focus on financial factors and do not think deeply enough about lifestyle factors. But they are important. Once you have figured them out, then and only then can you realistically answer the money question: How much will it all cost?
Retirement used to be about the three G’s: gardening, golf and grandkids. But for many Canadians, that simply is not the case anymore.
One reason these other factors are so important is that retirement has changed dramatically. Fifty or 60 years ago, most Canadian higher-income-earners would spend four decades working for one or maybe two organizations. When he reached aged 65, he (this person would almost always be a “he,” of course) could look forward to a gold watch, a nice send-off party and a healthy pension that would support him and his family for the rest of his life – which might be another 10 or 15 years, if he was lucky.
Fast-forward to today. Canadians (women included) will work an average of 15 different jobs before they retire, and many of those jobs will be “non-
traditional” – entrepreneurial, consulting or contract work, even stint work. People have different types of careers. Gold-plated pensions, not to mention retirement watches, are largely a thing of the past. Life expectancy has steadily increased, so someone who stops working at 65 today realistically needs to plan for the next 20, 25 or even 30 years. People are not only living longer in retirement, but also living healthier, meaning they may be more active and more mobile, and might even keep on working long after they “retire.”
These new realities – and how retirees manage them – make retirement planning much more nuanced. The rule used to be that if you retired with a certain lump sum, you could plan for a 4% annual withdrawal rate and 2% inflation, translating into a very reasonable 6% annualized rate of return on your nest egg to keep it whole. Yet in today’s inflation and market environment, as well as a much-changed social environment, it’s not so simple. High-net-worth individuals in particular have more time and more freedom in their retirements, so planning needs to take into greater account the non-financial factors.
Those factors are as diverse as retirees themselves, but let me give a few examples:
- You’re single and/or you don’t have kids or other family around. You need to plan for higher caregiving costs, particularly in the later years of your retirement.
- You want to indulge your love of travel. Recognize that as you get older, the less likely you’ll be able to or want to travel, especially as health becomes a challenge. So, factor into your planning the probability that expenses will be front-loaded into the early retirement years. (Travel is expensive.)
- You want to buy a vacation property. If you’re looking out of country for sunnier winter climes, then you need to consider what that might mean to your expenses. You will probably require extra medical insurance, and don’t forget about the costs of moving back and forth for you and your family.
- You’re really not ready to “retire.” Sailing off into the proverbial sunset is not for everybody anymore. For many of my clients, full retirement at 65 is very difficult emotionally. Perhaps they want to do consulting work, join a board, work for themselves, or get involved with private equity. They want to “rewire” rather than retire. And if they intend to keep working and earn some income, they need to factor that into their planning.
Retirement used to be about the three G’s: gardening, golf and grandkids. But for many Canadians, that simply is not the case anymore. Retirement today is more flexible, more varied and in some ways more challenging. So, yes, you need to think about cash flow and where it comes from. But financial considerations should come into play only after you have made the important lifestyle decisions.
The numbers still matter, but the who, where and what you will do in retirement matter just as much.