Enjoy retirement savings
April 12, 2012
Many of us allow our conservative nature to interfere with the enjoyment we want to have during retirement. If you want to spend and have the ability to do so, then by all means go out and enjoy yourself.
The traditional approach towards retirement thinking is to plan how much you need to save and estimate your required investment return to produce the desired retirement nest egg.
This is important; however, once you have done this, remember you can take your foot off the brake and enjoy the luxuries of your financial resources.
Maybe it is time to stop thinking conservatively and rationally and indulge in life’s little extras. After all, your lifetime of financial decisions is focused on how to best maximize your enjoyment.
If you have deferred certain pursuits in order to save, now might be the time to reverse that habit.
Think of all the different kinds of activities you might like to do such as leaving some money in your estate for your family. Perhaps you want to donate surplus funds to your favourite charity either now or from your estate.
In order to make these types of retirement decisions it is recommended you do some planning. Retirement planning can be fairly straight forward.
First, you decide how much cash you need to have each year to pay all of your expenses. Next, determine where those funds will come from.
What are your regular sources of income during retirement? This will include government income such as Old Age Security and Canada Pension Plan.
The remaining funds you need will come from your savings. The largest part usually comes from your Registered Retirement Savings Plan which is converted to a Registered Retirement Income Fund at age 71.
The final stage is to estimate how much money will be left at the end of your life. That is the amount that would go to your estate. Most often the retirement planning process stops there.
One suggestion is to re-calculate the amount you can spend from your investments if no money was left in the estate. To be safe you would assume a very long life.
That will put an upper limit on your spending. Yes, you originally calculated your annual spending amount. However, by eliminating having funds left to go to your estate, you now have an upper limit on annual spending.
If you wish to leave an estate for your family, that amount, if known, should be allocated as “untouchable” and your calculations for retirement spending should exclude that estate amount.
Planning for retirement is no different than other types of planning. Looking at the issue from different perspectives can give you greater insight into your options.
Retirement planning allows you to understand how much you will spend and also how much you can afford to spend. This will help you make important financial decisions during retirement that will affect the quality of your life.