With the right income plan and mindset shift, it’s possible to enjoy retirement without second-guessing every dollar spent.GETTY IMAGES
The prospect of retiring can be stressful. It’s not just about the transition from working to leisure, or the need to find new purpose. Many retirees struggle emotionally with the idea of tapping into their nest egg.
Going from saver to spender can be a tough shift. A recent survey from BMO found more than three quarters of respondents worry they won’t have enough money in retirement. Even those who’ve invested and planned meticulously and have sizeable retirement assets can be thrown by the need to turn your savings into income.
“Most people think that drawing down income in retirement is a financial decision, but it’s really a psychological one. The idea of seeing a balance retreating versus advancing is difficult to swallow for almost anyone,” says Tony Maiorino, head of RBC Family Office Services in Toronto and a director of RBC Wealth Management Financial Services.
That’s part of the challenge of the decumulation phase. In the accumulation years, people save for retirement while working. Decumulation is about unwinding those assets in the post-retirement stage to create a paycheque.
Many retirees default to a defensive mindset, says Leslie Logan, a senior financial planner at TD Wealth in Toronto. “You go into a ‘I don’t have enough’ frame of mind, where every time you have even a small bill you experience anxiety.”
This can lead to not spending enough for early retirement goals like travelling. Years can pass and you risk being in late-stage retirement feeling regret about all the fretting and scrimping. That’s time you can’t get back, Ms. Logan says.
So how can you spend with more confidence?
For couples, communication between partners is key, says Hannah McVean, a fee-only certified financial planner with Objective Wealth Partners in Markham, Ont.
Many couples often have different retirement ideas, financial literacy levels and approaches to money. Ms. McVean frequently works with couples where one partner DIYed retirement savings for both, with the other blissfully unaware. These challenges are best bridged by talking about each other’s goals at least a year before retirement, though the earlier the better.
“Only [by] knowing exactly what each of your concerns are can you reasonably figure out how to deal with them.”
Whether you’re part of a couple or single, she says everyone benefits from a detailed retirement income plan. It differs from traditional financial planning that’s focused on saving and investing. In an income plan, building your own paycheque involves decisions like how much to withdraw each year, which accounts to draw on and in what order, splitting income with a spouse and tax optimization strategies.
Income plans must also account for the fact that spending patterns can vary as the years pass. Although retirees may be in a new life stage, they sometimes haven’t rebalanced their portfolio to accommodate it, notes Ms. Logan.
In addition to incorporating savings and investments, income plans need to factor in payouts from the Canada Pension Plan, Old Age Security and, for some, the Guaranteed Income Supplement for low-income seniors.
Ms. McVean calls a retirement income plan the fear buster. By walking through retirement spending needs and creating an income plan to address them, clients can have a tangible guide as a north star, she says.
“For some, just showing them how all the income sources are layered to build a retirement paycheque eliminates their anxiety.”
People are often pleasantly surprised that they have enough. For those who are disappointed that their money won’t fund all their retirement ambitions, “We go back to the drawing board where we discuss what really matters to them,” says Ms. McVean.
It’s always best to have a realistic picture of income, even if finances fall short of goals, says Mark Seed, a semi-retired DIY investor in Ottawa, who blogs about his journey at My Own Advisor. “Hope is not a plan.”
He says he “programmed” himself to save and invest for 30 years. Like any routine, lifelong saving is a hard habit to break. But he’s learned to give himself some psychological slack. Plans can and likely will change in retirement. That mindset can ease the pressure to get everything exactly right.
Mr. Seed does his own income planning, and typically builds in a 10 per cent spending buffer above expenses. He regularly monitors and adjusts his plan, knowing that circumstances evolve. Peace of mind in retirement comes from thoughtful yet flexible planning, not perfection. “It just needs to be good enough,” he says.