Preparation for the ‘golden decades’

Retirement planning is probably the number one reason people are interested  in personal financial planning. Given the huge amount of widely available information on this topic (endless lists of books, articles, websites, advertisements, etc.), it's close to impossible to say anything about it that is  novel and meaningful.

A very important aspect of retirement planning is that it cannot be done meaningfully with a cookie-cutter approach. Every situation, every person  is different, and the content and scope of retirement planning is changing as we  age. Therefore, treating it as a cyclical process is vital. Using a spiral is perhaps a better metaphor for this process, since it's not just that same  issues had to be revisited from time to time; instead, the issues and tasks to tackle also change as people progress from one stage of life to the next.  Besides a mistaken one-shot approach, another trap is treating retirement planning as purely an investment planning exercise. Investing has to be done for  a purpose; clarification and perhaps adjusting of goals (because, as our lives  unfold, new circumstances emerge, new values, attachments, or emotions may develop, or simply because the financial conditions alter from what seemed  likely before) is an iterative process between the financial and non-financial  realms. According to age, personal characteristics, and circumstances, the range of applicable investment tools varies too. In general, annuities are not  for the 30 years old, while sector funds are not for the septuagenarian (people in their seventies),  e.g.

A fundamental first step in any retirement planning is considering the various aspects of available / expected government pension plans (OAS, CPP, GIS)  and government and/or company sponsored tax-advantegeous retirement programs (RRSPs,  RPPs, DPSPs, RRIFs, etc.). Based on these, as well as on own non-registered  assets, and other factors, the major decision about retirement age can be  made. If all the factors don't constitute an acceptable and realistic plan, then the variables to manipulate (with reason and awareness!) are the retirement  age (or type, from full to gradual, e.g.), the accumulation (savings before retirement and/or risk/return adjustments and compromises), the intended lifestyle (needs and wishes), or some estate planning belt-tightening. With  spouses, the retirement plans of both parties should be dovetailed to achieve better joint results.

Retirement planning cannot be considered circumspect and comprehensive without insurance planning, since illness, injury, or death in the family may  render an entire nice retirement plan obsolete in no time. Not much less  obvious is the interconnection between retirement planning and other  sub-components of personal financial planning, like tax planning, investment  planning, or estate planning.

Demographics plays important roles in so many things, from fashion to  politics, but perhaps nowhere is it more obvious than in thinking about retirement. Like in other highly developed economies, in Canada as well the  age-composition of society is dramatically unprecedented. The so-called  baby boomers are just about starting a huge retirement boom, and the  decrease of the proportion of those in the workforce to those already retired  will accelerate for many years to come. Many believe, and serious scholarly  studies support it, that changing demographics will bring about many  insurmountable challenges for governments in the coming decades. There is much talk about these issues; however, if one looks at how historically low savings  rates have gone, it seems that the consequences have not sunk in for most people.

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Frequently Asked Questions

In addition to all the qualitative and macro aspects (aims before being quantified,  relationships, connections, preferences, complex financial rules, social and  economic trends) to consider, retirement planning, of course, encompasses numeric aspects at the micro/individual level as well. Objectives  and assumptions must be quantified, otherwise progress cannot be monitored. There are many on-line calculators (including the ones available from this page) and inexpensive software tools to help this number-crunching. They are usually very useful as a first approach, and playing with them can be quite  informative for anyone, if not for other reasons than at least because they can clearly demonstrate the huge long term effects of compounding returns, costs, and inflation. For serious planning though, even some of the tools widely used by financial service providers are quite rudimentary. A fine job usually takes  fine tools, and those are not inexpensive and not so simple to  use.

These web pages are for information purposes only. The information contained and presented, while based on and obtained from sources we believe to be reliable, is not guaranteed either as to its accuracy or completeness. The content of these web pages is solely the work of the author, Laszlo Kramar.

The views (including any recommendations) expressed on these pages are those of the author alone, and they have not been approved by anybody. Neither the information nor any opinion expressed herein constitutes an offer, or an invitation to make an offer, to buy or sell any product discussed or referred to in these web sites. These web pages are for educational purposes only and are not intended for use by residents of the United Sates; nor are they intended as an offer or solicitation in any jurisdiction outside of Ontario, Canada. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

(c) Copyright 1997-2006 László Kramár. All Rights Reserved.