I started providing professional financial advice in 2002. In the past 24 years, I’ve observed changes in the experiences of my clients that are shaping how they view retirement.
High earning clients are asking about early retirement, but what they mean is slightly different than you might think. Most conversations about retirement used to centre around the question, “when can I retire?” Now I’m hearing, “I don’t really intend to retire, I want to know when I can choose to slow down, change careers, or do something I love and get paid for it.”
Today, the big question seems to be, “when can I make choices about my career without worrying so much about financial stability?”
There are many factors impacting Canadians’ changing views of retirement. To start with, life stages have shifted. Life expectancy is a bit longer, and many Canadians are starting families later. Maybe one or both parents are still alive when we enter retirement, so we have caregiving responsibilities. Maybe we have kids at home when we start the process and we’re still actively parenting.
I’m also seeing increased pressure on income for clients across all ages, including those who have saved and inherited wealth. Living costs, for the most part, have grown faster than incomes has increased.
Access to information about retirement finances has also skewed how many Canadians view this stage of life. We’ve gone from having limited access to information to being bombarded it. Often, it’s provided through social media by people who have no credentials and no responsibility to provide full or accurate information.
What’s stayed the same is, clients need to be able to answer two questions for themselves.
I believe it’s important for clients to have the information and context they need to make confident decisions about retirement. The same is true of conversations about investment markets, which can impact retirement funds!
Starting to plan for retirement when you’re young can make a significant difference in your long-term financial security. The following tips can help:
Everyone knows they should save early. It’s something young people hear again and again, and in today’s economy, it may seem like it’s easier said than done. But the truth is, starting young, even if it’s just with small amounts, really can make a difference.
First off, the earlier you start, the less money you have to save later. But creating the habit of setting money aside can have an even bigger impact in the long run. When you start with smaller amounts, you can learn with smaller amounts and make mistakes with smaller amounts. Saving and investing become more familiar and more accessible.
Divide your savings between different accounts based on the job your money needs to do. For example, you might split them into an emergency fund, home savings, and travel funds. This simplifies your decision making and gives you a clear view of where you are in relation to your goals.
Pull together the information you need before you need it. I talk to clients who don’t know about the costs of owning property and raising kids, or how to use different types of life insurance. When I speak to them, I’m clear that while they may not need this information today, it’s a signpost we can come back to it when the time is right.
Being familiar with a concept that may be relevant in the future, and even having a framework for a plan, can keep you on track and reduce your stress.
As retirement approaches, it becomes increasingly important to review your financial plans. The following tips highlight key steps you can take later in life to improve your retirement readiness.
Determine what you own and what you owe (net worth). Gather information about your income and expenses. Figure out where your money is going now so you can decide whether it makes sense to you.
Context is always important, especially when you’re mid-to-late-career. Be sure you understand your circumstances, and don’t follow advice that doesn’t apply to you. I’ve seen people follow advice that increased their estate when their goals were to spend now and gift to family while they’re still alive. Having the right information and knowing how it applies can provide peace of mind.
Doing so can provide a reality check, helping you understand where you are now, what your goals are, and whether there are any gaps in your planning. Without a plan, I find people often make choices that drive them away from their goals.
It’s possible to have high net worth and still be short on money month to month. If your net worth isn’t liquid (“liquid” means it can be easily converted to cash), or you have debt, you can still run out of money. In that case, it’s likely you’ll have to make big lifestyle changes mid-retirement. If that’s you, it’s better to know now.
What if you can’t work as long as you planned? Which expenses are really going to decrease, and which ones might increase after you retire? How might an increase in expenses affect you?
No matter what questions you have, and where you are in your journey to retirement, a professional financial planner can help. A Certified Financial Planner® professional or Qualified Associate Financial Planner™ professional can help you understand your financial situation and start planning for the future you deserve.
To find a CFP® professional or QAFP® professional who can help you kickstart your retirement planning, visit the Find Your Financial Planner tool.
Sara McCullough, CFP, is the Owner at WD Development, which offers advice-only financial planning.
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