When is the best time to plan for retirement?
This is a question that has come up quite often lately. Planning is, however, more of an ongoing process than a single one-time event. Yes, there is the initial plan, but that should be followed by continuous planning.
Planning should generally be done at least yearly, although it would not be uncommon to plan more often. Especially if you are making any changes such as deciding when to retire, whether to work part-time or selling your residence.
Retirement planning has several characteristics. Those characteristics should be a guide to how the planning process works.
Retirement can extend over a very long time. The conventional age of retirement is age 65 and the average life can be into your eighties. These days, many retire at a younger age so the retirement period is longer.
Planning for a life expectancy well into your nineties makes sense for a couple of reasons. The first reason is that planning for the average life expectancy is dangerous. The average person who already has reached the age of retirement will live into their eighties. While the eighties is the average, some live fewer years and some live more years.
Second, Statistics Canada data shows that a person at retirement who outlives 90 per cent of their age group will live a very long life. Men will live to age 91 and women to age 96.
Retirement can last for 20 or 30 years. This is a long period of time so you will be spending money long after your regular employment income has stopped. In that context, planning should be done early and often.
It is best to start early. People often begin paying attention to retirement around the age of 50. Should someone already retired plan for retirement? Absolutely. A 70-year-old could still live for a several decades so planning is critical.
Retirement planning is all about cash flow which delivers the desired lifestyle. Understanding where that cash flow comes from is the starting point. Generally retirement cash flow is a combination of money from the government including Canada Pension Plan and Old Age Security. Some retirees also have pensions.
The balance of cash flow comes from personal investments and, or money from the sale of the family home. At a minimum the planning process should include an annual cash flow projection from the sources of your cash flow for the balance of your life. An estimate of your personal savings will also need to be done to determine if your money will last as long as you hope to live.
Every year there is change. You spend more or less and your investments might fluctuate in value as a result of market swings. The annual cash flow projections account for all changes and are an excellent way of assuring yourself that your desired lifestyle will be maintained.
It is our recommendation that planning for retirement be considered a process. Starting earlier is beneficial. It should be done annually regardless of when you start to plan. That is your way to ensure your desired lifestyle will continue to be affordable.
Regardless of whether you are already retired, if you are over 50, retirement planning should be done annually.