Don't Wait Too Long to Enjoy Your Retirement
You spend decades saving for retirement. But when retirement finally arrives, will you actually feel comfortable spending the money you worked so hard to build? Don’t Wait Too Long to Enjoy Your Retirement
For many Canadians, the transition from saving to spending is one of the most challenging parts of retirement.
After years of contributing to RRSPs, TFSAs and investment accounts, watching those balances begin to move in the opposite direction can feel uncomfortable. Even retirees with significant savings may worry about one question:
What if I run out of money?
That fear is understandable. But it can also prevent you from enjoying some of the healthiest and most active years of your retirement.
The goal of retirement planning isn't simply to accumulate the largest possible portfolio. It is to build a plan that gives you confidence to use your wealth intentionally throughout retirement.
Understanding the Three Stages of Retirement Spending
Retirement isn't one straight line.
One way to think about it is through three broad stages: the go-go years, slow-go years and no-go years.
The Go-Go Years
The go-go years generally begin when you retire and can continue into your 70s.
For many retirees, these are the years when you still have the health, energy and motivation to travel, explore hobbies, spend time with family and tackle the experiences you've been putting off.
Not surprisingly, these can also be higher-spending years.
Travel, recreational purchases and other experiences can increase your expenses just as employment income disappears.
That's exactly why these years deserve careful planning.
The Slow-Go Years
As you move through your 70s and 80s, your lifestyle may naturally begin to change.
You might still travel and remain active, but activities can start shifting closer to home. Bucket-list trips and large recreational expenses may gradually give way to a more predictable lifestyle.
As a result, some discretionally spending may decline.
The No-Go Years
Later in retirement, health and mobility can become bigger considerations.
Recreational spending may decline significantly, while other expenses, including health care, support services, retirement-community living or long-term care, can potentially increase.
These changing spending patterns are one reason a retirement plan shouldn't assume you'll spend exactly the same amount every years for the rest of your life.
Why the First Few Years of Retirement Matter so Much
There's another challenge retirees need to consider: sequence of returns risk.
Sequence of returns risk is the danger of experiencing poor investment returns early in retirement while simultaneously withdrawing money from your portfolio.
Imagine retiring just before several difficult years in the stock market.
You still need money for groceries, bills and travel. That means making withdrawals even as investments decline.
When assets are sold at lower values, there is less capital available to participate in a future market recovery. A series of poor returns early in retirement can therefore have a greater impact than the exact same returns accruing later.
This risk shouldn't necessarily stop you from spending.
Instead, it should influence how your retirement portfolio and withdrawal strategy are structured.
Start by Determining What Retirement Will Actually Cost
Before deciding how much you can comfortably spend, you need to understand what you want retirement to look like.
Start with your regular monthly expenses.
How much needs to arrive in your bank account every month to maintain your lifestyle?
Then consider the expenses that don't appear on a typical monthly budget.
For example:
How much travelling do you want to do?
Are there major trips on your bucket list?
Do you want to buy an RV or Boat?
Will you renovate your home?
Are there hobbies you want to pursue?
Would you like to financially help children or grandchildren?
Think in terms of both regular monthly spending and additional annual spending.
Those numbers become important inputs when determining how to draw income from your investments, when to consider starting CPP and how registered and non-registered accounts may fit into your retirement-income strategy.
$20,000 of Spending Doesn't Always Mean a $20,000 Withdrawal
One important element of retirement planning is often overlooked: where your spending money comes from matters.
Suppose you want an additional $20,000 for travel.
If the money comes from an RRSP, you may need to withdraw considerably more than $20,000 to have $20,000 available after tax.
Money withdrawn from a TFSA, by contrast, does not have the same immediate tax consequence.
A non-registered investment account introduces another set of tax considerations depending on the investment being sold and its adjusted cost base.
The point isn't that one account is always better than another.
It's that retirement income should generally be considered across the household's entire financial picture rather than treating every account independently.
A thoughtful drawdown strategy can help determine how much to withdraw, which accounts to use and when those withdrawals should occur.
Build a Portfolio for the Job of Retirement
Your investment portfolio had one primary job while you were accumulating wealth: help your savings grow.
Once you retire, that job changes.
Your portfolio may now need to:
Generate dependable cash flow
Fund regular withdrawals
Support additional discretionary spending
Manage the effects of market declines
Address inflation over a potentially 30-year retirement
Remain flexible as your circumstances change
That may require a combination of diversified equities, cash reserves, bonds and shorter-term investments.
A cash buffer, for example, may provide money for near-term spending without requiring you to sell equities during a significant market downturn.
Fixed-income investments can potentially provide another source of liquidity, while diversified equities can continue playing an important long-term role in addressing inflation and supporting portfolio growth.
There is no single allocation that's appropriate for every retiree. The right structure depends on your income requirements, pensions, investments, tax situation, risk tolerance and long-term objectives.
For more on this subject, listen to the previous Retiring Canada episode, "Your Retirement Investments Need a New Job."
A Retirement Plan Needs to Be Flexible
Retirement planning involves making assumptions about a future that could stretch 30 years or longer.
And life rarely unfolds exactly according to plan.
You could experience a health issue.
Your career could end sooner than expected.
You might receive an unexpected offer for your business.
You could decide you want to work longer.
Or your priorities could simply change.
A strategy that makes sense today may need to evolve as your life changes.
That's why retirement planning isn't simply about producing a financial plan once and putting it on a shelf. It is an ongoing process of reviewing your circumstances, testing your assumptions and adjusting the strategy.
Sometimes the Biggest Retirement Challenge Isn't Financial
There's another side of retirement planning that spreadsheets can't fully capture.
Your relationship with money.
In this episode, Michael shares the story of a client who hoped to spend an additional $30,000 per year on travel but remained deeply concerned about running out of money.
After reviewing the client's portfolio, retirement spending and long-term financial picture, the numbers suggested substantially more spending could be possible.
The client still wasn't comfortable.
Eventually, their conversations revealed why.
The client had grown up in a household affected by addiction and financial insecurity. A single parent had fought to keep food on the table, provide clothing and preserve whatever savings were possible.
Those experiences didn't disappear simply because the client's financial circumstances had changed.
And that's an important lesson.
Our relationship with money is about far more than numbers.
Decades of saving habits, family experiences and financial uncertainty can continue influencing how we think about money long after the circumstances themselves have changed.
A retirement plan can show what's financially possible.
But sometimes the real work is developing the confidence to enjoy what you've built.
Three Retirement Action Items
Here are three things to consider after listening to this episode.
Define Your Go-Go Years
Start mapping out what you would genuinely like to do during the first five to ten years of retirement.
Research the trips you've always wanted to take. Price out the RV or boat. Consider your hobbies and other major experiences.
Turn vague retirement dreams into approximate dollar amounts.
You can't properly plan for goals that haven't been defined.
Consider Whether a Hobby Could Generate Income
Retirement doesn't necessarily mean you stop earning money altogether.
A hobby, consulting role or other flexible activity could provide additional discretionary income while giving you a sense of purpose and fulfillment.
Even a modest amount of income may help fund travel, hobbies or other optional spending.
Understand Your Relationship with Money
Think about the experiences that shaped how you view wealth, saving and spending.
If you're financially secure but still feel uncomfortable spending money, you're not necessarily alone.
You can't change the experiences that shaped your relationship with money. But with a thoughtful plan, you may be able to change how much influence those experiences have over your future.
Make a Plan So You Can Retire With Confidence
Retirement shouldn't only be about making your money last.
It should also be about using the wealth you've accumulated to build the retirement you worked so hard to achieve.
Understanding your spending. Build a tax-conscious withdrawal strategy. Structure your investments for the realities of retirement. Review your plan regularly.
And don't overlook the psychological side of moving from saving to spending.
Because good retirement planning isn't necessarily about dying with the largest possible investment account.
Sometimes, success is having enough confidence to enjoy what you've already built.
Explore more retirement planning insights and episodes at retiringcanada.ca, and visit www.fundamentalwealth.ca for more.
All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.