Retirement is coming. What should you be thinking about as you turn 50?
When you are 35, your life stretches endlessly ahead of you. You are in the midst of child rearing and career building. Over the next 15 years, paying off your home, educating your children and consolidating your career are the main areas of focus.
Then there's that fiftieth birthday party. The Big Five- O has arrived.
By now the children are probably either out of the nest or well on the way, you have a good picture of what your career is going to be and your business is well established. The issues of the day are not the same as they were when you were a younger adult with a new family and at the beginning of your career. You now have memories of formative experiences, but retirement and mortality are starting to slip into your thoughts.
No Formula for Successful Retirement
Happiness in retirement is not dependent solely on having sufficient funds. You need to look at the whole picture of the lifestyle you wish to have and the effect on it of your present and future assets and debt. A little attention paid today should give you some idea of how you want to live in retirement and enable you to start planning. Here are some areas you should consider when gathering information about the change to your life that is inevitably coming.
An important aspect of any retirement plan is determining what you would like to do. Maintenance of your present lifestyle is a good baseline from which to compare other possible lifestyles. What is the minimum amount of other income you would need to continue your present lifestyle if your earned income ended? What would it cost to do some things you can't do now because you are still working? For example, what if you want to live in Florida during the winter and spend the summer at the cottage in Canada? That retirement goal is much different from staying in Canada year round to golf in the summer and ski in the winter. Each goal requires different financial considerations.
Personal and Spousal Health
Health is an important concern, especially if you are unable to obtain additional insurance or plan to spend a lot of time at a property in a foreign jurisdiction. Before you make any major commitments to retiring abroad, make sure you understand your provincial health coverage and how to maintain it while out of province. In a similar vein, take a look at the cost and coverage of travel insurance for extended travel abroad.
Property and Other Assets
List all your real estate, personal assets and liabilities with the assigned value and debt attached with them. This will provide an estimate of your current net worth and permit a strategy aimed at reducing the debt within a reasonable time frame.
Foreign Real Estate
If you own foreign real estate and decide to spend part of your time there, you need to investigate that country's sojourn and visitor rules to ensure you do not overstay your visit and end up being deported from the country or forced to pay residency taxes.
Your portfolio should be divided between registered (RRSP) and unregistered investments and between debt and equity. What is the annual rate of return on your investments overall? Is the portfolio well diversified? Will it be able to provide funds for your retirement if it continues to grow at its historical average rate? Is your RRSP fully contributed? Does your spouse have an RRSP? Is there room for more contributions?
Wills and Powers of Attorney
If you don't have these critical pieces of documentation or if circumstances have changed significantly since they were written, make the changes now. You need to provide the survivors with a guideline for your physical care as well as for the disbursement of your physical and financial assets.
What is the likelihood of advancement, retirement or dismissal after age 50?
Job Security and Opportunities
Be honest with yourself. At the age of 50, what is the likelihood of advancement, a retirement package or dismissal? What are your options if the job ceases to exist because of changes in technology, a merger or acquisition?
If you are self-employed, what are your succession plans? Do any of your children want to take over the business? What is its growth potential if you want to sell it as a going concern?
Pensions from Employment
Review the terms of your pension plan. Is it fully funded? If you are dismissed, is the pension transferable? Is there any possibility the company may go bankrupt and be unable to honour its pension obligations?
Life and Health Insurance
Life insurance and health insurance become more expensive with age. Insurance may not be available if you become sick or present policies expire. Consider whether additional life insurance or health insurance should be purchased while you are still able.
You should have a clear understanding of the tax consequences in the event of your death, the death of your spouse, or your simultaneous deaths. Determining the financial impact on survivors will assist in determining whether the asset mix, beneficiaries or ownership should be changed or whether additional insurance might be the answer.
Putting It All Together
In the end, all of this knowledge must be synthesized in a long-term action plan. You will need to seek the advice and collaboration of your spouse, your family, your investment broker and your banker to gather all the information required. After all the information has been collected and summarized, consider meeting with your CPA for guidance as to whether your retirement goals must be modified to fit present and future financial realities.