Crafting Your Retirement Blueprint: 15 Essential Steps of Knowing When It’s Time to Leave Work

Retirement. Something you have talked about with your family members and closest friends over a glass of wine… or two. A word that brings new emotions: excited and nervous, new decisions, and contemplations. It can mean a new life, calling with promises of leisure activities, freedom, and a chance to finally live on your terms. It brings many considerations and emotions that surround the question: When is the right time to retire?

Retirement signifies change — a shift from your routine that has structured your life for decades. It’s the thought of losing the social connection you have with colleagues, the sense of purpose that comes from work, and daily challenges of achieving all of your other goals: family time, being a good parent, spouse.

Retirement itself has changed since it was introduced in 1889 by German Chancellor Otto von Bismarck. His vision was to pay citizens aged 70 and older to leave the workforce so youth could take over those jobs. The age has since changed to 65, setting the precedent of retirement at 65. Yes, that is how retirement was started… crazy isn’t it? Bring up that fact at a dinner party and see the surprised looks you get; some German Chancellor decided the retirement age for the entire world. Thankfully, that’s no longer the case, Otto is not in charge of your retirement age… you are 😊

A few factors that could impact when you retire:

1)     Health - Longevity (or average lifespan) back in the late 1800’s was near retirement age. We are now living longer. You may want to retire at 55 and still have 40 years of retirement ahead of you. Are you ready for that? Is your body? I have seen too many times when clients’ bodies or minds decide their retirement date for them.

2)     Changing Family Structure – Do you have new grand babies to look after or have an adult child  at home seeking help? Your families life may impact yours… wedding to pay for? Gifting for a mortgage down payment to a child? Most importantly, is your spouse ready for you to retire?

If you and your partner are anything like my parents, it may be best to not retire the same time. You may start driving each other a little crazy...

3)     Cost of Living – Should I even go there? We have all seen the price of everything skyrocket lately. Important to note, if you are retiring early and living longer… your dollar will have to be stretched further. Particularly if the cost of living continues to rise. All good financial plans should account for inflation (the cost of the things you buy going up).

4)     Financial Readiness - It adds another layer of complexity to this decision. Have you saved enough to sustain the lifestyle you envision in retirement? Will you be financially secure without the regular income from work? Or, does your retirement include what I call a hybrid retirement – working part-time on your terms. These uncertainties often cast a shadow over the excitement, causing moments of doubt and curiosity.

5)     Psychological Readiness – Retirement is a shock to the system. Change can be a challenge, even if it is an exciting change. Are you ready to leave work behind? Are you fed up and done with work?

The right time to retire isn't scripted in stone; it's a personal decision based on your individual aspirations, circumstances, and feelings. It's about listening to the whispers of your heart while acknowledging the new world we live in. As you approach this new chapter in life, here are essential steps for you to take before you actually retire:

1.      Calculate Your Retirement Needs: Begin by assessing how much you will spend in retirement. This will include categories such as: housing, healthcare, transportation, leisure activities, food, dining out, and any other potential costs. There are many tools available online like the Canadian Retirement Income Calculator to give you and idea of what your situation will look like. (https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html) However, to estimate your retirement income needs accurately, consider a professional Financial Planner (CFP®). It’s free to test drive one….

2.      Explore Government Benefits: Understand the Canadian government benefits available to retirees. These include the Canada Pension Plan (CPP), Old Age Security (OAS), and Guaranteed Income Supplement (GIS). Learn about if you are eligible to receive them, how much will you get, better yet – how to apply for it (the government can make it so challenging), and how these benefits can supplement your retirement income.

3.      Maximize Savings Plans: Contribute regularly to your savings plans throughout your working years. TFSA’s, RRSP’s and OPEN accounts can all be used to save for retirement. 1 of these or a combination of all could makes tax sense for you. An RRSP contribution can help reduce how much you owe in taxes to the CRA… I’m sure you’d rather have it than them. Consider professional advice for your strategy and if it is right for your situation, including when to start withdrawals.

4.      Get The Most Out of Your Pension: If you are one of the lucky few with those rare monthly pensions, I am envious of you. Secondly, understand your workplace pension plan. They usually have seminars to educate employees on the ins and outs. Consider whether to take a lump-sum payout, or monthly benefit or opt for a pension annuity. I strongly advise you speak with a professional before you make this decision. Assess the impact of your decision on your retirement income and tax situation.

5.      Healthcare Coverage: Look into healthcare coverage in retirement. We are lucky enough in Canada to have public healthcare rather than our American counterparts who pay thousands and maybe hundreds of thousands for the help they need. I have spoken with clients that owed $80,000 for a week or two of treatment in a Florida hospital. WOW.

You either deal with extra wait time in Canada or face potential financially ruin in the States with how expensive it is…. I’ll take the former. Regardless of your position on that debate, consider health insurance plans for additional coverage, prescription drugs, dental care, and vision care should you require it. Or, will your work benefits continue into retirement?

6.      Estate Planning and Wills: Plan your estate and create a Will to ensure your assets are distributed according to your wishes. I have seen too many clients pass away without a Will and there are many who swoop in for a piece of the pie. Make it easier on your family when you pass, please. Don’t do it for me or you, do it for them. Consider consulting with legal professionals to establish the Will, Powers of Attorney – someone to look after your affairs if you cannot or do not wish to along with ensuring your healthcare directives are in order.

7.      Stay Informed on Taxation in Retirement: Everyone’s favourite topic, taxes!! Understand the tax implications of your retirement income sources. Learn about tax-efficient withdrawal strategies from various retirement accounts to minimize taxes in retirement. If that sounds too boring for you, speak to a Financial Planner or your CPA - Certified Professional Accountant. We like numbers.

8.      Invest Wisely and Diversify: Diversify (spread out your money) across various asset classes and sectors: not just everything in technology. 2022 is a great example of some technology investments being down 50-75%. I am going to go on a limb here and say you likely don’t want that especially as you get closer to withdrawing your money for monthly spending.

When I say spread out your money, I mean into different geographical areas: US, Canada, internationally. Did you know that Canada only represents 3-4% of the world economy? Putting all your money into the TSX (Canadian market) is not the right thing to do. Ensure your investments align with your risk tolerance and retirement timeline. Too much risk could cause you a heart attack, too little could lead to having less money in the future to spend. Just like Goldie Locks – the right bowl of porridge is what you’re looking for.

9.      Health and Wellness: Nurturing your health is paramount in this new chapter. Consider health insurance, create an exercise routine, and focus on a balanced diet. After all, a healthy body and mind will carry you through the adventures of retirement. Eat your spinach like Popeye so you can walk the cobble stone streets of Italy with ease. I can already smell the pizza...

10.  Social Connections: Retirement isn’t just about leaving work; it’s a transition from a structured environment to newfound freedom. Have a plan to stay in touch with who you want to and spend time with those you’ve been missing! Want to go watch your grandsons hockey game (eh) or grand-daughters art show? Go do it, your time is yours! Lunch with the girls or golf trip with the guys to Florida….. go for it! These connections will give you a fulfilling retirement.

11.  Transition Plan: Like anything, a good plan will help get you (and keep you) on the right track. Craft a transition plan that eases the shift from a full-time career to retirement. Mentally prepare for the change, slowly embracing the shift in routine. This adjustment period is crucial, allowing you to adjust to the new rhythm of life.

12.  Embrace the Unknown: Retirement isn’t a destination; it’s ongoing and ever changing filled with new discoveries everyday. Embrace the unknown with open arms, enjoying the spontaneity and freedom it brings. Allow yourself the flexibility to adapt and evolve as you navigate this uncharted territory.

13.  Explore Part-Time Work or Hobbies: Consider engaging in part-time work or pursuing hobbies that can generate additional income during retirement. Besides the financial benefits, staying active can contribute to a fulfilling lifestyle. I’ve had many clients start a little business or second career for a project they are passionate about.

14.  Create your Retirement Team - Accountants, Lawyer, and a Financial Planner: Seek guidance from financial planners or retirement specialists who understand the intricacies of Canada's retirement landscape. They can provide personalized strategies based on your specific goals and financial situation. You may want to work with an Accountant (CPA) during this challenging time. I’d recommend interviewing a few to see who is the best fit for you.

15.  Talk to Your Loved Ones: Do you know anyone who has retired recently? What steps did they take and what did they do to get ready? Have you talked with your spouse about your plan and what they’d like to do? Unless you want to sleep in the doghouse…. I’d get on it 😉  

Remember, everyone’s situation is unique. Regularly review and adjust your retirement plan as circumstances change. By taking proactive steps and leveraging the resources available, you can navigate towards a secure and fulfilling retirement journey. Start planning early to enjoy the fruits of your labour during your golden years! See you in a few weeks where we will focus on your spending plan in retirement. As a money nerd… I am excited!

DISCLAIMER:

The contents of this letter does not constitute an offer or solicitation for residents in any other jurisdiction where either Cody Weber and/ or Sterling Mutuals is not registered or permitted to conduct business. The opinions expressed are those of the authors and do not necessarily reflect the views or opinions of Sterling Mutuals Inc. Mutual funds provided through Sterling Mutuals Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing. Mutual funds are not guaranteed, their values fluctuate frequently, and past performance may not be repeated.