EP03 - WealthSmarts - The Retirement Puzzle | WealthSmart

EP03 – WealthSmarts – The Retirement Puzzle


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There’s one unfortunate thing. If we don’t have answers to these questions, our brains will default to whatever people around us are saying our brains will default to the loudest voice. This is, well, smart, where you will gain the financial capabilities and confidence to achieve the goals that matter to you. Now here are your host, Richard and Matt. So I got a problem with retirement, specifically retirement income. So in retirement, there are so many puzzle pieces that’s often difficult to know how much income you’ll be getting. So you’ve got your riffs, your lifts, your pension, your government benefits and other sources of income.

So how does it all even fit together? I think a problem that many people face is sometimes it feels like they’re trying to fit a square peg in a round hole. What do you think about this? I hear you. You know, it kind of takes me back a number of years because I don’t know if you can recall, but I built a financial planning program using Excel spreadsheets, and it worked really well. It was messy, you know. It worked, but I actually saw how all of these inputs plugged into the overall plan, and it was a nightmare, like just actually coordinating them all into the cash flow in the proper sequence and everything.

So I totally understand where people are at when this can get kind of overwhelming, because that spreadsheet we had was multiple, multiple, multiple columns wide, and it’s just not a simple matter. It’s just not a simple matter. But I think you’ve done well. A proper financial plan is going to help recognize all of these different sources of income for what they are, how they serve you and how they fit into the plan from a tax perspective, how they fit in from, you know, accomplishing other objectives. So whether it be like you say, your different accounts riffs, lift pensions, government benefits, you know, we’ve got so many acronyms in our business.

But if you just listen to the names outside of those acronyms, like a riff is a registered retirement income fund. Its name tells exactly what it does, Just like you have a G I. C. You know, it’s a it’s name tells us what it is. You have fixed income. Its name tells us what it is. Uh, so lifts a life income fund it’s designed to provide you for life income. Yeah, it doesn’t always work that way, but it’s kind of designed that way. So a proper financial plan is going to help you actually put together all those puzzle pieces and sequence them.

And when we talk about the tax, the ideal scenario is that we don’t have any peaks and valleys in our tax situation, because we, you know, we don’t want to go rise up into the super high tax bracket and have the government clip off the top end at a really high rate. And then we drop back down to a lower tax bracket. We want to even out those taxable events that taxable income all the way through make it and smooth it out in effect, right? So in essence, there’s a lot to bring together, right?

Absolutely. And I know we went on a bit of tangent. You did, but I do that, you know. You have to, you know, get used to it, right? So, in regards to retirement income, a lot of people might be asking these questions. And these are big questions in our industry. Number one When can I retire? Number two. When should I take my government benefits? Number three. Am I saving enough? And number four. In what order should I spend my assets? Right. So let’s be honest and upfront up here.

Trying to answer all of these questions at once is very overwhelming, right? Like it makes it even more difficult to have that confidence in our retirement. And the biggest problem I see with this is you’ve worked so hard your entire life to establish that financial freedom that you’re looking for, right? Um, we all remember our university days and actually, all the courses that we take along the way in this industry, it ultimately ends up in an exam that you got to take. And when you open up that exam booklet, of course, now it’s all done online.

But you look at the screen and you’ve got all these questions in front of you, and there’s, like, 50 to 100 questions and you look at the time and I’m never gonna get through this because you’re looking at all of the questions. Yes. What’s the only way they stay saying in a situation like that, we have to take a step at a time. One question at a time. Every single question. You just focus on that one at a time. We can’t multitask on that. Yeah, I agree with that.

But there’s one unfortunate thing. If we don’t have answers to these questions, our brains will default to whatever people around us are saying our brains will default to the loudest voice, and especially when it comes to personal finance and retirement. This is wrong because everyone has a unique situation, right? Like if I was to emphasize anything about financial advice, it’s your situation is unique. The advice that works for someone else might not work for you, right? So that needs to be taken into account. Absolutely. I’m looking at every one of these questions, and the market has an answer for every single one.

So when I see that question, when can I retire? Well, the market created an answer for that years ago. It’s got to be 55 because there’s one company in Canada that created this whole advertising campaign focused around freedom at 55 Freedom 55 they even named the company after that, and they did a really really good job of doing that. But people had that transfixed in their minds and said, I have to retire. Then what am I gonna do at 55? Have no idea. But that’s my mark. Like that’s when I got to stop, right?

When should I take government benefits? Um, we know that we can take government benefits like CPP early at 60 instead of 65 so immediately there’s a bunch of voices saying, Yeah, taking a 60. Because that way you get your money up front. Yeah, but what about those people that feel and in all likelihood, with genetics and stuff can live to age 100? Well, if they differ their income, you know, they could have a larger income for the rest of their lives. So am I saving enough? You walk into your financial institution and they’re telling all the signs you’re not saving enough. Okay?

Started systematic to give more context into the CPP and OS the start times. If you start at age 65 that’s your basic pension. That’s the UN reduced pen. Anytime before 65 you get a reduced pension, you get a penalty of about 7. 2% per year early. Then you take it. And then if you wait longer, you get bonus. You get bonus stop. Exactly. Yeah. So, you know, for people that might decide. Hey, I actually enjoy what I do for a living, and I don’t need that extra income. So, like us in this business here, I’d love to be doing this as long as I can, So I’m not going to take Canada pension plan at 65.

I’m probably going to wait for a while because then when I finally decide, Okay, I’ve had enough. Then I can say, Okay, I’m going to have a nice high income for the rest of my life. But we’ve got the flexibility to adapt that Canada pension plan sequencing to whatever is going to fit our plan rather than somebody. And I think you mentioned it earlier. Especially. This is the one thing that many don’t consider. It’s a taxation part of that because let’s say you’re still working until 65 ish and you start taking your CPP early.

While that bumps up your income, you’re taxed more on that. Absolutely. Does that make sense? It does. Yeah. Now, if somebody had enough Our RSP contribution room. And I’ve had a couple of cases where clients have said I’m gonna take my Canada pension plan now because that gives me an additional source of income that I can then funnel into my RSP because I’ve got lots more room because they want to take control of those assets themselves rather than have the government dictate how their income looks right.

And there’s nothing wrong with that. But you got to work with a financial advisor for that. Again, it comes down to the plan plan. Absolutely. And I think you had an analogy about a house that we were just talking about, right? Oh my gosh, you might even hear some of those noise over the microphones. We’ve got a house being built right next door, and there’s a lot of moving parts there, and I’m just imagining a situation where I decide I want to build a house and I’ve got a pretty good idea having done a number of different renovations ourselves and seeing people do renovations for us, that there’s a lot of moving parts, you know, in a house.

We gotta get lumber delivered. We’ve got to get a greater in, uh, to level the soil. We got to do some digging for the foundations. We gotta drop in some footings, build the footings, pour some concrete into those footings, have some rebar stuck inside there, and then we’re gonna frame that thing up. So we’re gonna need a bunch of lumber. Uh, we need a bunch of siding and plaster and copper and wires and roofing materials. And so I could feasibly develop a list of everything that we needed and go to some plan, shop online and say, Get me one of those houses.

I could download the blueprints for that house and I could have all of the materials delivered to the house. And then I could say, Okay, let’s let’s go build a house. Good luck. Especially for you. I get distracted. Way to Even if I knew what I was doing, I’d have a hard time. But what we need instead is hey, maybe not drawing that plan off the shelf. But maybe we need to hire an architect designer that then speaks to us and asks us questions about what’s important to you. Value.

What job do you want this house to do for you. And how many people are gonna be living there? Are you going to have an office in the house or not? Like, Do you need a gym or whatever like a lot of different things, And then design a house exactly according to what our needs are. And then that architect can then actually come up with the specs and the plan for how this is going to be built, And then a contractor can order all the materials, and we’ll know exactly how to direct all the trades to actually put the whole thing together.

Our retirement plans are no different, right? Yeah. Okay. The next question Am I saving enough? Well, first of all are even saving at all. That’s That’s very valid, because, I mean, we see a lot of situations where people Well, I’m actually not saving anything. Well, what do you do? Well, when I have some money left over, we put it into investments. I think there’s a term that you like to use, um, paying yourself first yourself first. We pay so many people during each month during each year that by the time we’re done finished paying everybody else we haven’t paid ourselves.

We’ve got so much income coming in, so much value that we’re receiving for our work and we’re not getting paid for it. Yeah, and I think it goes back to how our default, as as humans, is when we have something, we will spend it like. It’s very difficult to be proactive and plan for our future, especially when we’re more concerned about what’s happening today, right? So maybe within your plan, you take a look at what you’re doing. And rather than finding out okay, what’s left at the end of the month?

Because, you know, sometimes there’s a lot more months left at the end of the money, if you know what I mean. But why don’t we start off the month and say, I’m going to pay myself first and let’s start off small. Maybe it’s 100. Maybe it’s a few 100 a month and we say, Okay, I’m paying myself that, and everybody else fits and no, naturally, there’s bills that you’ve got to pay just have to happen. But throughout that month, you’re realizing No, I’m paying myself first, so I can’t spend as much on this anymore, like very discretionary expenses.

So that way you’re going to progress forward if you make that commitment and take the courage to pay yourself first ahead of time just as a tag. And I guess a bonus tip in relation to this is when people get bonuses and raises and maybe like the lottery, like when I’m just kidding. We know that once we get that stuff, what’s the chances of it not being spent virtually zero right, unless we have a plan. So the plan says all windfalls go into our RSP or save half of them or something.

We basically just have a plan. We can reward ourselves a little bit. We can enjoy the fruits of that windfall a little bit, but have a plan. Maybe you’re right. Maybe 50% for sure. Did we talk about when we can retire? We didn’t really get around to that. Did we know that’s actually the big question. That’s actually the big one is because I worked for a number of years during university over the department store enrichment and there was a huge environment. They’re a huge social environment. There was there was a company, social club and everything like that.

We did all kinds of things together, but for a lot of people, that was their lifeline. Those were the people they hung out with, and then they retired and they never saw those people again, and their whole social environment disappeared. So the big question we have to ask is, Are you ready for that? Do you have a social network that you’re going to be moving towards when you retire? Because that’s a big factor. Are you ready to spend more time with your spouse? I know my dad retired at 57 like he had done.

He was overworking Labatt’s brewery as a supervisor there, and he worked hard. He worked harder than I ever worked right, and all of a sudden he was spending all his time with my mom. So it became crystal clear he needed to have his own space. So he built his own space on the side of the house there and one of his many workshops, one of his like he had about a half a dozen different workshops, and that was the additional one that gave my mom more space right that was critical in their relationships.

Are you really ready to spend that much more time with your spouse? You need to have a plan for them. And here’s an idea. Why not practice retirement? Why not dedicate a vacation in the next year or two? If you’re anticipating retirement, dedicate that vacation to you know what? We’re going to practice retirement over our three or four week vacation and just imagine what that’s going to look like. Okay, so what, you’re really singing? All of this is the question. When can I retire? There’s a lot more to it.

There really is right. And when you’re done, those exercises you might decide, I don’t think I’m ready or you might decide. You know what? Those are good questions to ask, and I’ve got an answer, and we have a plan for it. So, yeah, I’m ready to go. This is the right time. I could continue accumulating more wealth, but there’s things that I want to enjoy. Those things that I want to do without getting a paycheck, right? Okay. And I guess the final question is, what order should I spend my assets?

It’s the sequencing thing, just like the retirement incomes. When do I take my government benefits? When do I take my pension? We have to decide that. Like this. There’s multiple buckets where we have our money. We have registered retirement savings plans. Are SPS tax free savings accounts, TF ESAs. We have, um, locked in retirement funds from previous pensions from former employers. Uh, we have non registered savings sometimes, Yes. For those of us that have our own company, we have corporate assets that are sitting there. It’s really hard to decide.

Sometimes we might be inclined to say by hate paying taxes. So I’m gonna drain down the tax free savings account and then end up with a bigger tax bill in retirement and potential clawback of our old age security just to clarify one thing. Why would you have if you took your T. F s a first? Why would you have a higher retirement income? Good point. Because if we’re not drawing on our registered retirement savings plan like as you know, when you retire, we often transfer that RSP into a registered retirement income fund.

And we actually have to do that by the time we’re 71. Okay, But if we can defer that as long as possible and then take that money out. We’re going to have way more in there, so we’re going to be forced to take more income potentially more than we need, and it’ll all be taxed. And if we’ve been really successful in our savings plans, it could push us into a bracket where we have so much coming in that old age security tax starts flying it back. So maybe the answer is, let’s start drawing down the registered retirement savings earlier in little bits and then save that tax free savings account, potentially as a bucket of last resort and potentially in our state planning that’s going to go to the airs on a tax free basis.

It’s mainly attacks. Question that comes into play. So again, again, I think the point people are going to get really mad at us for emphasizing over and over is, uh it depends on your situation. There’s no magic bullet here, and anybody that’s looking for that magic bullet and listening to the podcast. I think our listeners are pretty smart. They know there’s no magic bullet. It all depends, and you actually need a customized financial plan you need to be working with an architect, designer and a contractor to fit all the pieces together.

So let’s imagine a big future where this problem of not being sure about your retirement income is resolved. What does this all look like to you? We’re about to perhaps getting into some boating adventures. And I remember these as a child, and we’re going to revisit some of these adventures, you know, in the coming years. And I love the nautical analogy. I mean, for goodness sake, we’re in Vancouver here. We’re surrounded by water. I love the analogy of navigating a boat across the ocean to a destination.

You can see that destination on the horizon. The early explorers saw it. You use all your navigational tools and charts at your disposal to get you there, and then you arrive and you get to experience what you’ve always been looking forward to. And let’s call that retirement right. The big question is in that journey. Have you really arrived, or do you then look for what’s next on the horizon? Right? So we prefer the latter to always be looking at the horizon, seeing what’s next to get to where we wanted to go.

Be grateful for that experience and then actually look at always a bigger future than our past. Always be looking towards the future. So a proper financial plan is going to help you navigate towards the goals that matter and help you adapt to the inevitable changes and new goals that life presents you. So we love that kind of the picture. Beautiful picture. Yeah. Mhm. Thanks for listening to today’s episode of wealth smarts. Be sure to check out the show notes and our website for more information. If you’re not subscribed already, please subscribe wherever you get your podcasts, Yeah.