Congratulations, and welcome to retirement. This is a critical stage in your life, an opportunity to both relax and potentially live a life void of stress for many years.
Yet often opportunity is characterized by the complete opposite, causing premature aging, and an increased risk of health conditions. One of the main culprits is poor mental health, caused by stress and anxiety.
So, let’s take all that advice we wish we could tell ourselves 40 years ago, and apply it to today.
1. Have Fun Keeping Busy
One of the main complaints that seniors have is boredom. Most people have spent their entire lives on a strict schedule, where they’ve spent 40 hours of their week at the office, and the three weeks of holidays they do get have been packed with to-do’s, and downtime.
Now unless life was truly good to you financially, you probably won’t have spent 52 weeks per year in Mexico, but that doesn’t mean you can’t feel like you’re on a lifelong holiday.
One option is to find a part time job, doing something you enjoy. An opportunity to socialize and assist others in something that you are passionate about. Most likely you have never had a job that you didn’t need, and you may find the result is something very rewarding. An alternative to a part time job is joining a board, or finding somewhere to volunteer on a regular basis.
If your family is nearby, take an active role in their lives. Go to all the grandchildren’s activities, offer to help out around your adult children’s homes, or plan family game nights or dinners. Having something active to do lets you be involved in their lives, without feeling like you are invading their space.
It is never too late to find a new hobby. You spent 40 years trying to pick up the piano but just couldn’t find the time. Well, now it’s there, and you have the freedom to practice on your own time.
The key is to keep your brain active, and moving. Change your perception of retirement from “absence of work”, to “enjoyment of work”.
2. Love That Body
One of the biggest challenges when you’re young is body image, and the hope that a quick trip to the gym can fix everything. As you age, you realize that proper diet and exercise are less about six packs, and more about health & wellness. Whether it’s a daily walk, a bike ride, or even some strength training, staying active as you age is crucial to longevity of the body.
Of course, the mind gets a huge benefit from your desire to keep moving too. Exercise gives you a feeling of accomplishment, and increases your self-esteem. It feeds your brain with a regular dose of endorphins, improving mood, and decreasing stress. The feeling of having a well-functioning body can decrease many of the anxieties that age can bring, helping encourage the feelings that you have many good years of life.
3. Make Sure Your Plans Are in Line
There are lots of unknowns about growing old, primarily based on your longevity, and your financial security during this period. Just like in your youth, making sure that all your ducks are in a row reduces your stress levels, even if getting there requires some work.
If you haven’t done it yet, make sure you and your spouse understand all aspects of your finances, expenses, and securities. If something happens that prevents one of you from taking care of these, the other needs to be in the right frame of mind to take over. The stress of dealing with a sick spouse and taking over finances can be daunting.
Go over different scenarios with your Net Worth Manager. What if we live for 40 more years instead of 20? What if the market crashes? What happens if one of our adult children needs financial help? The role of Your Managers is to help assist you in planning for these bumps in the road, so that you can be prepared without the need to panic.
Make sure you know how much you have. One of the biggest risks is either spending too fast, or not spending fast enough! During the early period of your retirement, you may still feel like you did in your 40s and 50s, with lots of energy, and good physical health. This is the best opportunity to use money for the things you enjoy. At the same time, longevity may bring extra medical needs that might require extra financial planning. Learning how to have fun in the early days, while making the money last is essential to a mentally healthy retirement.
These are some of the best years of your life! The freedom to do anything you want and on your own time. If you have any concerns approaching retirement, please don’t hesitate to reach out to a Net Worth Manager. Their sole job is making sure that you are in the best possible situation, based on your current income.
Retirement income planning is a distinct field in the financial services profession. The financial circumstances facing retirees differ dramatically from pre-retirees. For this reason, traditional wealth management approaches that focus on accumulating assets do not address a retiree’s needs.
Here are the top 7 financial challenges unique to retirees that must be taken into account when planning for this decumulation stage.
1. Reduced Earning Capacity
We may have a harder time making money. Physical or mobility changes as we age can make it tougher to do our old job. Sometimes we encounter ageism either through negative perceptions of our abilities or an employer’s desire to recruit younger, cheaper staff.
Many consider self-employment which means allowing for start-up costs.
Even if our own health is good, we may need to take time to look after a loved one or attend appointments with them. We may want more flexible hours or prefer to take a position of less responsibility with correspondingly lower pay.
Less income can be stressful in market downturns as paycheques have stopped or are less to fall back on.
2. Actual Spending Constraint
We spend our whole lives accumulating then suddenly that turns on its head and we start using what we have squirreled away. Our brain has a hard time adapting to the difference and accepting it’s ok to watch our net worth decline. Instead of enjoying the money we worked hard for we may become overly sensitive to daily expenses increasing, and one-off surprise expenses are more distressing.
We may struggle to justify treating ourselves or splurging because paycheques have stopped. There are no second chances to replace this money.
3. Heightened Investment Risk
Once we stop saving and start using our nest egg, we are vulnerable to sequence-of-returns risk. Poor returns early in retirement can throw a wrench into sustainable withdrawal plans. Market returns experienced near a retirement date matter a lot more than most people realize. Retiring at the start of a declining market is incredibly stressful. Did you know that even after positive average market returns during 30 years of investing, if negative returns are experienced in the early stages when you start spending from your portfolio, wealth can deplete rapidly through withdrawals?
While you’re still working, you can rely on your paycheck as your portfolio recovers, but this is no longer an option in retirement.
4. Unknown Longevity
The fundamental risk for retirement lies in the question: How long will your assets need to generate income? Retirement can be much shorter or longer than a person’s statistical life expectancy. Half of the population will outlive their life expectancy. A long life is wonderful but it costs more and is a bigger drain on a retiree’s resources. Imagine stretching your savings for 40 years instead of 20 years. If you haven’t planned for it, how would you feel?
5. Retirement Spending is Like a Smile and Spending Shocks
Spending isn’t the same through retirement, and I often describe it like a smile, a U Shape. More in early retirement, enjoy your time and health, then less as we slow down, and increasing as we age and need to pay for help.
Unforeseen expenses: health and long-term care, helping other family members, divorce, changing housing needs, home repairs, rising prescription costs, the list goes on and on. While contending with the other risks mentioned here, retirees must maintain financial flexibility to manage unplanned expenses. When budgeting for retirement, it is important to include a “rainy day fund” for surprises such as these.
6. Compounding Inflation
Do you recall what gas cost when you bought your first car? The price of a jug of milk or supper out when you got married? Inflation eroding purchasing power is a huge risk. While it may not be noticeable immediately, even low inflation can have a big impact over a lengthy retirement.
With a 3% average annual inflation, the purchasing power of a dollar will fall by more than half after 25 years.
Adjusting to account for inflation from year to year, CPP, OAS, and pensions are usually linked to the Consumer Price Index. Generous plans might use 80% of the CPI increase but many have a cap of 2.5%. Know what your plan provides to avoid surprises.
7. Declining Cognitive Abilities
Finally, we must consider that we may experience declining cognitive abilities, which can hamper our decision-making skills. It becomes increasingly difficult to make investment and withdrawal decisions as we enter advanced age. In addition, many couples don’t share the management of family finances. When the spouse who’s keeping track of finances dies first, the surviving spouse can run into serious problems if they do not have a clear plan in place. He/she can be vulnerable to financial predators or mistakes. Experiencing financial stress on top of losing your best friend is something we want to avoid. Build your professional network while you are still healthy.
This may all sound daunting, but the point of a retirement plan is to head off these concerns before they become a problem, so you can enjoy this next stage of life!
You’re still on a financial site, and we are still talking about finances, but as you dive into a new realm of little people, marriage, and some big purchases, it’s easy to lose that sense of control that you had in abundance just a few years ago.
The fact is that each of the following things are tied strongly to your financial wellbeing. Your ability to produce at work, your ability to save, your ability to not stress eat Pizza Hut five nights a week. It’s ok, we all have those days, but if you’re feeling like it’s consuming your life, try one of the following:
1. Scheduled “Cheat” Days
You’ve heard of food cheat days, well we want you to take life cheat days! According to one New York Post article, it takes six years for a child to enter an age where parents begin to get a break. And so, many parents do nothing but count down the days, feeling stressed, exhausted, and sometimes even depressed during the early years of having children. Combined with new words like “mortgage”, and “insurance”, it’s easy to become overwhelmed. While just a few years prior you could enjoy a night out any time, now you need to plan it, and plan it you should! Often the only way to get a break is to force it, and yes, that might even mean paying for a sitter.
Some breaks cost money, some are free, but the payoff is always rest. That rest will not only get you through the next week, but it will also help you brush off the stressful moments and find the joys that you can only find parenting little people.
To do: Find a friend who can schedule in a coffee once a week at the exact same time for an hour. Chances are they need the break too.
DON’T LEAVE! I know that with everything going on how are you ever going to find time for exercise, kids or no kids?, getting to the gym is always a chore, plus, Dad Bods are totally in right now.
This is not about getting in more reps, flat abs, or a faster mile, it’s about one word: endorphins.
Endorphins are a chemical created within the brain that reduce stress and pain, and they’re naturally produced during exercise. What kind of exercise? Any! You can walk, you can run, you can play golf, you can wrestle with your kids, you can do yoga, and yes, you can go to the gym. The point is, an elevated heart rate paired with some moving muscles makes your life better every time.
To Do: Get out that stroller and walk! The easiest physical activity that can be done with a friend, a spouse, an audio book, or to music, and doubles as time spent with your children,
3. Financial Planning
Money continues to be the number one stress for couples in Canada, and it doesn’t end in your 20s. The reduced purchasing power of our dollar, combined with higher debt loads has put a huge strain on your ability to live now, let alone plan for the future, but there are some things you can do early on to get ahead.
Now is the best time to learn about taxes, and they will never again be this simple! Get educated on tax credits vs tax deductions and how you can leverage these to keep money in your pocket. Another area is learning about how much money you actually need to live, and if you potentially could put any away.
This is the best time to start thinking about your goals, which often are based on your financial plan. Do you want to go to Disneyland in five years, or buy your first home? Is a college education for your kids important to you, or would you like to spend that money on their sports and activities?
To Do: Start a spreadsheet and record your bank balances and debt on a weekly basis. No fancy categories, just numbers. This will help you feel confident that you know roughly how much should go in and out on any given month
But There is So Much to Do
The key to working on any of these is to pick one, and then pick an aspect of it that isn’t going to just stress you out more. The end goal is just to take those late night “I really should starts” into “I’m glad I did that today.”
In 2008 an Iphone app named “I Am Rich” appeared on the App Store for $999 USD, that when launched simply produced the statement: “I am rich. I deserv [sic] it. I am good, healthy & successful.” The app was downloaded eight times, netting the developer $5600 and Apple $2400. Apple removed the app the day of its release.
Save Money by Spending Money?
Net Worth Management is a new philosophy on managing your wealth, different from the “Financial Advisor” role that has been ever present in our lives. You know the drill – meet with your advisor, learn about what you need to live a secure life, and buy the products that will get you there. And don’t we know it, most of our team has worked for and with these companies for many years, and at first glance it all makes sense.
But the challenge is that the more you buy, the more money the advisor makes, so naturally they are going to push you to buy more products. It’s not their fault, nor the fault of their firm – they are businesses, and they have chosen to make money through fees.
So how can we make this better, and still be profitable?
It’s About Your Life
To nail down how this works, we took a hard look at the word “Financial Advisor”. The definition really comes down to – “A person who advises you on your finances” (yes we used the words in the definition). Do you see any fit here for a salesperson? Or would you expect someone more like a coach, a counsellor, a mentor?
Once that distinction was made, we just needed to start charging like those professions. So instead of paying a percentage of products purchased, our customers started paying us a regular flat fee, which allows an all access pass into the expertise of our entire team. All of a sudden there is more time to get to know you, your dreams, your goals, your life. How many kids do you want, do you want them to go to college, how often do you want to take a trip, do you want to buy a rental property? Or let’s break it down to how you can afford your kids hockey fees, the new car payments, or a night out with your spouse each month.
Financial planning is about your goals, and learning how you can achieve them within your means.
Fees in Canada
It’s worth noting that you – a Canadian, are fortunate (eyeroll) to live in a country with some of the highest mutual fund fees in the world. You can expect to pay close to 2.4%, all the way up to 2.7%!
Let’s Get You There
You need a Financial Plan, and someone to guide you through it.
It needs to be adaptable, and based on what you want to achieve.
Does your life change? So will your plan. And that’s a good thing.
Do you want help planning for 1 year, 5 years, 10 years. Great, because that’s where Net Worth Management comes in. For a flat fee, you’ll get an expert in financial planning, who will be on your team every step of the way, keeping you accountable, and on track.
And the best part? We aren’t going to sell you anything you don’t need. It’s just solid financial planning.
You’ll get peace of mind, security, and all those other touchy feely financial terms. But you’ll also get that trip you wanted to take, or that home you always dreamed of. You’ll find extra cash to go to the movies, just from learning when to say no at the grocery store. We’re on your team.
Who knows, maybe you’ll get to a point where you have enough disposable income to buy an app that tells you you’re rich. But you won’t, because it doesn’t fit into the plan.
Investment fees don’t work because they incentivize creating a financial plan that solves your problems with products, instead of with your current income. Financial Planners should be creating plans that work for your life, that help you reach the best goals for your family. They need to be flexible, realistic, and highly adaptable. Instead, pay someone for their expertise, whose primary focus is on your financial happiness. Choose a Net Worth Manager.