5 Retirement Planning Options To Help You Reach Your Retirement Goals

5 Retirement Planning Options To Help You Reach Your Retirement Goals

There are lots of unknowns when it comes to retirement planning. Most of us focus on how much we need to save for retirement without giving much thought as to how much we’re going to spend in retirement. I’d say, in general, that most people want to maintain their existing lifestyle, if not enhance it with extra money for travel and hobbies.

A $1 million dollar nest egg can provide you with $30,000 to $40,000 to spend each year with reasonable assurance that you won’t run out of money. But if your ideal retirement lifestyle costs $60,000 per year, your million-dollar portfolio won’t be enough to last a lifetime.

Once you determine your magic spending number, the rest of the variables start falling into place. The earlier you can identify the amount of income you need to live the retirement you want, the easier it is to make your retirement plan and adjust course, if necessary.

Let’s say you’ve analyzed your retirement income needs and find, based on your current financial situation, that you won’t be able to fully fund your desired lifestyle. What to do?

Five Retirement Planning Options

Here are five retirement planning options to help you adjust course and reach your retirement goals.

1. Reduce your lifestyle

A $60,000/year retirement might be out of reach based on your current situation, but perhaps reducing your goal to $45,000/year can still provide a great lifestyle in retirement.

This lifestyle adjustment could mean travelling less often, making sure you retire debt free, downsizing your home, replacing your vehicle less often, reducing your hobbies, or a combination of all the above.

Don’t forget to include government benefits such as CPP, OAS, and/or GIS when projecting your retirement income. It’s worth sitting down with a retirement planner to figure out the best way to draw down your assets and when it makes sense to apply for CPP and OAS.

2. Work longer

It can be difficult to picture yourself working longer once you’ve got retirement on the brain, but a few extra years on the job can drastically alter your retirement projection.

The longer you work, the more you can save (or add to your pensionable service if you’re so lucky to have a workplace pension). But also the more years you’re working and earning a paycheque the fewer years you have to withdraw from your nest egg.

Are you healthy and willing to grind it out at work for a few more years? If so, you might be able to reach that $60,000/year retirement goal after all.

3. Earn more return from your investments

This is a tricky one because you might take it to mean investing in riskier assets (i.e. an all-equity portfolio), when in fact you can earn higher returns by reducing the overall cost of your portfolio. That’s the first place to start.

Imagine your $300,000 retirement portfolio is invested in a typical set of mutual funds that comes with a management expense ratio (MER) of 2%. The cost is $6,000/year but you don’t see the charge directly – instead it comes off your returns.

Switching to index funds and going the do-it-yourself route might reduce your costs to 0.5%, or $1,500 per year. That’s an extra $4,500/year staying in your retirement account instead of going into the hands of your advisor.

There might also be a case for increasing the risk in your portfolio. Say, for example, you tend to hold a lot of cash in your portfolio – you’re not fully invested. Or you hold a bunch of GIC’s and other fixed income products.

Dialling up your investment risk to include a portion of equities could help you achieve an extra 2-3% per year. The power of compounding can make a huge difference to your retirement portfolio and holding even a small portion of equities in retirement can help your nest egg last longer.

4. Save more

This one is so obvious it should be first on the list. If you’re not able to fully fund your desired retirement lifestyle based on your current projections then you need to save more.

Hopefully your final working years can give you the opportunity to boost your retirement savings. Big expenses, such as paying down the mortgage and feeding hungry teenagers, are behind you.

But an empty nest and paid-off home might tempt you to increase your lifestyle now rather than doubling-down on your retirement savings to boost your lifestyle later. That’s fine: See options 1-3.

That said, there’s no better time to enhance your nest egg by maxing out your RRSP contributions, including unused contribution room, and doing the same with your TFSA, in the years leading up to your retirement date.

Be mindful here, though, of strategies to reduce your taxes in retirement. It makes little sense to go make significant RRSP contributions in your final working years without considering how withdrawals will impact taxes or OAS clawbacks in retirement.

5. Supplement your retirement income

Much like working longer can increase your nest egg, supplementing your retirement income with a part-time job derived from a passion or hobby can prolong the life of your portfolio.

Imagine earning $10,000/year from driving a shuttle, working at a golf course or winery, writing personal finance articles, doing photography, or working a couple of days a week at Home Depot just to get out of the house.

All of a sudden you don’t need to withdraw $60,000/year from your retirement account. You only need to take out $50,000/year. That not only extends the life of your portfolio, but studies have shown that having meaningful work in retirement can extend your life, too.

Final thoughts

Retirement planning is critical and the earlier you start planning the easier it is to make these course adjustments and reach your desired outcome.

Related: The Retirement Risk Zone

Even late starters need not despair. The first two options – tempering lifestyle expectations and working longer – are on the table. Everyone can try to save more and earn more from their investments.

And, finally, a little retirement side hustle can give your lifestyle a boost and enhance your overall quality of life.

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  1. Brad S on August 19, 2022 at 10:25 am

    When talking about 60k or 45k for retirement, is that before tax or after tax? I’m never really clear on that.

    • Robb Engen on August 19, 2022 at 12:02 pm

      Hi Brad, I do my planning with after-tax dollars in mind. What does it cost to live your life? Then we determine how to get there (the income streams, withdrawal strategy, and corresponding taxes).

  2. Kurt Friesen on August 23, 2022 at 2:32 pm

    I think it may be reasonable to start one’s retirement with a 6% withdrawal rate, provided you are willing to spend less or supplement income during periods of poor returns. Based on historical data, extended periods where you’d need to do this are pretty rare. This is something I attempt to address on my indexgoose.com website, which we’ve previously discussed.

    • Kurt Friesen on August 24, 2022 at 12:34 pm

      Looking at the numbers a bit closer, even with plan to be flexible on withdrawals, starting at 6% would probably still be too aggressive. But a period of semi-retirement at the start, and a flexible withdrawal approach based on portfolio performance could result in the ability to withdraw significantly more than that a few years down the road, depending on portfolio performance.

      In other words, ideas 1 and 5 are great, but their use can vary over time depending on how the portfolio is performing. The situation isn’t locked in at the start of retirement, and a bit of flexibility and the ability to keep options open early in retirement can lead to a greatly improved situation a few years later. Good article, just thought I’d add a few additional thoughts.

    • Don on August 29, 2022 at 2:44 pm

      There are so many issues with the 4% rule that it’s only because it’s so simple that it’s still around. Most people go through two, if not more phases during retirement. Early retirement (the go-go years) is where people are still healthy and able to engage in activities such as travelling and leisure pursuits (think golf an pickleball). This is then followed by a gradual decline where people just don’t do much, so spending drops.

      I’ve personally witnessed this with my grandparents and now parents who are in their mid and late seventies, but the 4% rule just doesn’t deal with this reality. It’s rather sad that people slavishly follow this ‘rule’ as if it were some law of nature. I think that it really prevents people from being comfortable enough to retire when they can or enjoy their retirement as much as they could.

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