It's easy to look at parts of a financial planning picture in isolation – RRSP contributions here, tax planning or business transition plan there. But it's only when we look at the whole picture that a comprehensive plan comes into focus.
"People miss out on so much without a comprehensive approach to retirement planning," notes Dave Lee, Senior Wealth Advisor with Scotia Wealth Management in White Rock. "Usually, everyone has blind spots that haven't been addressed – some they may be aware of, but others they're oblivious to. The result is less money and more worry in retirement."
With that in mind, Dave shares seven factors to consider, no matter where you are on your journey toward or in retirement.
1. Understand how much income you need in retirement
As a starting point, this is essential, and something many people simply don't know, Dave says. The question revolves around what kind of lifestyle you have now, what you want your retirement to look like and how you’ll pay for it. "The more you spend now, and the more you're used to spending, the greater the pool of money you'll need to sustain yourself in retirement."
Conversely, people who live more frugally during their working life won’t need as much money set aside.
2. Don’t overpay on taxes
"Most Canadians have a good handle on their taxes while working, but I find the biggest gap is what should be done from a tax planning perspective in retirement," Dave says.
A personalized tax plan can include different strategies to reduce, defer and in some cases avoid tax that would otherwise be paid.
"There's a lot more that can actually be done in retirement and a lot of people miss out because they don't understand all the moving parts."
3. Understand your pension options
While fewer people today receive work pensions, most still participate in some sort of retirement savings plan through their employer. Integrating those plans with the Canada Pension Plan and Old Age Security in order to get the optimal benefit can be complex.
"With pensions, people often have a wide range of options to choose from and each situation is unique – the best choice for one person or couple could be inferior for someone else," Dave says. "You can't make pension decisions in isolation – you need to do the work and look at all the factors."
4. Diversify your investments
Diversifying your portfolio is an important investment strategy to reduce and manage risk, and it's important to revisit your approach and your plan from time to time.
"Many people have a plan they started long ago and they keep putting money into the same funds over the years without adapting to changes to their life stage," Dave says, noting the importance of seeking lower cost investment options.
5. Security and peace of mind
Life brings many surprises. As career changes, health challenges, divorce or a myriad of other life events come along, a robust, a Total Wealth Plan can prepare you for financial surprises, insure risks where appropriate, and help you be more resilient and adaptable, Dave says.
6. Plan your estate
It can help to think about the estate planning process as an act of caring for your loved ones, Dave says.
"Estate planning is your opportunity to make your intentions clear for your beneficiaries and reduce the burden on loved ones left behind, especially at a difficult time."
If philanthropy is also important to you, a well-organized gifting plan can also let you give to one or more charities through your will, leaving a legacy for years to come, and in the process reduce the amount of estate taxes owed.
7. Transition your business smoothly
For business owners, retirement planning takes on added complexity as business assets and investments must be part of your overall retirement picture, not viewed in isolation.
Through the Total Wealth Planning process, considerations include the business's worth, and whether you intend to sell it or pass it on. There are often retained earnings, investments or other assets to consider.
Knowing – and planning for – how you want to transition your business can bring substantial savings and let you maintain greater control when retirement comes.
Dave Lee CIM, CFP, FCSI is a Senior Wealth Advisor with Scotia Wealth Management in White Rock. He can be reached at dave.lee@scotiawealth.com or 604-535-4743.
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