People don’t look at retirement the same way anymore. Increasingly, it is thought of in terms of the financial independence they are want, because it can offer a host of possibilities for life experiences to those who see it as a new stage in their life journey. The key then is to prepare financially so that these years continue to enrich your life, in every way.
Look ahead
In fact, speaking of plans, retirement planning is essential. This should include assessing your needs, and setting up and contributing to a good financial plan. The support of a financial advisor in this regard will also help you to optimize your plan and not leave out any of its most important aspects, in particular diversifying your investment portfolio, tax considerations, and the legal documents to put in place to ensure your safety and peace of mind.
We asked experts in these subjects to share with you some practical advice to prepare you—depending on your age and your plans—for this new chapter in your life.
A plan that’s right for you
Did you know that 62% of Canadian retirees who use the services of a financial advisor believe they have enough savings compared to 38% of those who don’t have an advisor?1? These numbers clearly illustrates the real contribution that a financial advisor can make.
Anie tells us about her experience with her clients:
«In my practice, I often hear people tell me that it’s too early to start planning for retirement. The main reason they give is the time horizon. In fact, the sooner you start, even slowly, the more leeway you have!
The other reason often raised has to do with the difficulty people have in projecting themselves into the future. Since many of them are undecided about their retirement age, they believe they can’t start planning until that date is determined.
I often say that a retirement plan is a living thing and that it evolves with everyone’s life journey. Waiting to know at exactly what age you want to retire or to be sure that your professional situation is stable would be a bad idea. Today, few people keep the same job for many years!
I believe that, like me, most advisors like to have all the data in hand to set up a specific plan. That said, I much prefer to help my clients with their retirement plan, taking into account that some information may be more vague, than having to inform them that they won’t achieve their goals and that will have to either postpone their retirement date or considerably reduce their standard of living, or even save amounts that exceed their budget, or, in some cases, do all three.
Here are some recommendations to consider for a retirement without compromise.
1. Take action as soon as possible (to avoid unpleasant surprises!).
- In addition to a higher wealth potential in retirement, it creates healthy savings habits early in life.
- Your financial knowledge will increase faster.
2. Beware of promises of too high returns.
- A good advisor should manage your expectations concerning future returns, rather than promising you returns that are hard to achieve over the long term. Remember, if it sounds too good to be true, it probably is!
- Your advisor should know you well and help you achieve your goals, not theirs!
3. Get to know yourself well and don’t take all of the industry’s recommendations at face value.
- Who hasn’t heard that you need 70% of your income in retirement? If you intend to spend half your time traveling, trust me, you’ll be disappointed with this 70%! On the other hand, it’s better to aim for a vague target than to have no target at all!
4. Rely on your investor profile to diversify your portfolio.
- Your portfolio should be diversified according to your risk tolerance and your investment horizon, that is, the length of time you will stay invested. This is a rule of thumb that really makes sense when the markets decline!
5. Stay the course and invest continuously: regardless of stock market turbulence, stick to your strategy and keep investing. You’ll congratulate yourself on your steadiness when you retire!”
The importance of tax aspects
Even in retirement, tax considerations should be factored into your plan to avoid unpleasant surprises. These tax aspects will have an impact on your disbursement plan and who better than a tax expert to explain them to you!
We therefore asked Anik to provide an overview of the tax aspects that come into play in retirement.
«If you followed the recommendations of your financial advisor, you saved in various investment accounts throughout your career: tax-free savings account (TFSA), registered retirement savings plan (RRSP), non-registered accounts, corporate account, and others.
In my experience, in retirement, our clients face two main questions: “From which account will I withdraw the amounts I need?” and “How much should I withdraw weekly, bi-weekly or monthly to cover my cost of living?” This is where I can play a crucial role in setting up a disbursement plan that will answer these questions.
I will put in place a disbursement plan that will spread your tax burden over the years. By optimizing the disbursement of your investment accounts in a tax efficient way, you will not only be able to significantly increase the net worth of your portfolio in the medium to long term, but also avoid having to partially or fully repay government benefits such as the Old Age Security (OAS) pension.
To properly plan your disbursements, you must also look at several tax aspects, including the taxation of the amounts withdrawn, which will differ depending on whether they come from an RRIF or from an account of your corporation, or tax strategies that you could take advantage of, such as income splitting with a spouse or the corporation.
When you take a closer look, you realize that it’s very important for you to develop a retirement plan with your financial advisor that will be fully tailored to your personal and professional reality. For your plan to be truly optimal, it must take into account all the tax aspects that can have a direct impact on the net worth of your portfolio in retirement.
Taking the time to examine all these factors can reassure you about the tax impact you will incur and even maximize your sources of income, a much appreciated benefit!”
Protection of your person and legacy of your property
When you retire, it becomes very important to protect your person and also to determine to whom you will bequeath your assets.
Your physical safety is of the utmost importance and even in the absence of health problems, you should think about events that could affect your physical or mental independence. These considerations apply at all stages of life, because no one is immune from health problems.
Catherine strongly believes that the advice she gives her clients should support their priorities and their safety.
«When I help our clients think about their retirement plan, I see that everyone’s concerns are very different. Active listening and personalized service are essential because there is not just one formula or way of doing things. Everyone’s reality is unique, and our support must be too.
Your protection
To protect your person, you have two options: the protection mandate in case of incapacity, or the general power of attorney with incapacity clause.
The protection mandate enables you to choose for yourself who will take care of you and your property if you become incapacitated. You avoid falling under the jurisdiction of the public curator, and you give those around you peace of mind.
As for the general power of attorney with incapacity clause, it is in fact a combination of two legal documents, namely the general power of attorney and the protection mandate, which we just discussed. The benefit of adding a general power of attorney is that it allows the person you have appointed to manage your property even if you have not yet been declared unfit. In the case of the protection mandate, the incapacity must be confirmed by the court, which can take several months. To ensure continuity in the management of your property, a general power of attorney with incapacity clause provides you with significant benefits.
I also want to mention the importance of advance medical directives (AMDs). Under the Act respecting end-of-life care, AMDs allow you to determine in advance the medical care that will be accepted or refused in the event that you are unable to consent to care in specific clinical situations.
By completing the form for this purpose, or by a notarial deed which reproduces the contents of the form, you clearly state what is acceptable or not for you, in specific circumstances, and you remain true to your personal values. AMDs are an important document, which takes legal precedence over all others and must be complied with.
Your will
And there is obviously the matter of a will, another essential document. Sometimes clients have already signed legal documents, but wonder if they still reflect their wishes. We therefore analyze their will and assess the need for amendments. We then present this analysis to them and help them in their thought process, with legal advice appropriate to their situation.
In the case of a will revision, we work with external notaries who take charge of drafting the document. The work we do is done as a team: with our clients, of course, but also with other fdp experts. We offer you this choice of comprehensive support to maximize the scope of our advice. The input of your wealth management advisor and of a tax expert provides a full picture of your situation, which allows us to further personalize our recommendations.
Your estate
Because planning your estate is not easy, at fdp, we have documents that we make available to our clients to help them in this regard, in particular an estate kit which includes an estate settlement guide and an asset inventory form.
But we go further since we also offer a personalized assistance and support service that differs from what is usually offered on the market. And because finding a trusted person among family and friends to act as liquidator can be difficult, we have a liquidator service to take full charge of your estate. We can even provide you with a corporate trustee service if you are planning a bequest in trust and do not have an impartial, neutral and independent person to act as a trustee.
What matters most to us at fdp is the human aspect of our relationship with our clients. The added value we offer you is understanding, finding the best solutions for your well-being and creating optimal circumstances for a happy and rewarding retirement in all respects.”
The freedom to act
Planning for retirement is not an overwhelming or depressing exercise; rather, it is a proactive reaction to changing life circumstances. It is also, above all, the best way to give yourself the freedom to live your retirement years as you choose and with peace of mind.
We want to help you achieve this freedom. At fdp, our teams of wealth management advisors, tax specialists and notaries are at your service. Together, they can guide you towards a well-thought-out, worry-free retirement. Discuss this with your wealth management advisor.
1 Sun Life survey on retiree perceptions.
