Financial Assessment For Your Retirement

If you have been following this series – and doing your homework – you should now have:

  1. Done some serious thinking and reflecting on what you want your retirement to look like. Where will you live? What kinds of activities will you participate in? What’s on your “Bucket List?” When will you begin?
  2. Have a good estimate of how much money you will need – in today’s dollars – for both your fixed expenses and the fun things you will do, without being too conservative in your spending projections.
  3. Figured out a fairly realistic approximation of how much you will receive from pensions and government benefits. We’ll call this guaranteed income.

This is a simple self-assessment of how you might stand as you look toward retirement.

  • Your guaranteed income will cover both your fixed and variable expenses. You’re in good shape. Congratulations your retirement planning is largely done. You have the option of increasing your lifestyle spending, helping your family, giving to charity, or leaving a legacy.
  • Your guaranteed income will cover at least your fixed expenses. This is a good situation to be in. Your investments will finance nice-to-have luxuries or provide a buffer against inflation. It’s a good idea to plan to use a bigger portion of your money for travel, etc. in the early years of retirement, when you’re going to be the most active and healthy enough to enjoy it.
  • Your guaranteed income and variable income from your investments will cover your fixed and variable expenses. Figure out ways to cut costs as much as possible and leave some savings for emergencies. You might want to consider using a portion of your investments to purchase an annuity to increase your guaranteed income and protect your future by ensuring that your must-have needs are well covered. You can vary your nice-to-have expenses based upon how your investments perform.
  • Your guaranteed and variable income will cover your fixed expenses.  Eliminate any nonessential items and cut costs as much as possible, but you don’t want your retirement years to be all Brussels sprouts and no dessert. If this is your situation you have several options available to you. Delaying your retirement by working longer will increase your savings and maximize pension benefits. You might also consider working part-time in retirement.

Final thoughts

Don’t underestimate your income needs during retirement, but do take into consideration the evidence that, for most people, their spending tends to naturally decline as they age. The important exception to this trend is health-care costs, which tend to increase with age.

Calculate your must haves. You want to ensure you have enough to live on without feeling deprived of anything important to you. The amount you need may be a lot lower than you think – especially as a couple.

Budget for your dreams, but remember age takes its toll. Travelling or golfing every day may no longer be desirable once you hit 75 or so.

Be sure to balance the present and the future.

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  1. CanTex on November 13, 2015 at 7:23 am

    Yep, yep, yep and yep. As we are unwinding after moving (to a larger house of all things) I discovered a treasure trove of planning info from 10 to 15 years ago. I used several financial websites to run the numbers, including Monte Carlo simulations. What-if scenarios, hand-scratched calculations. I found where we could actually buy the small summertime condo in the GTA ( we live in Texas, ex-pats) and survive on the guaranteed income portions. After 9 years retired, the projection charts were quite close to reality.

    Since then our sons have married and we have six grandkids, the grandparent costs for whom I hadn’t added to the numbers. But with the confidence that we likely won’t outlive our money (hey, we were raised as old-school frugal Canadians) we can go on cruises and enjoy some bucket-list items. The planning numbers are always right there in front of me before we make a commitment to do something outside of day-to-day living expenses.

    But the next generation concerns me – little money being put away and the spending is way beyond what we would have done. They saw the example we set but thought they didn’t need to be that “cheap”. Hmmm.

    • Gary on November 13, 2015 at 8:51 am

      Excellent post CanTex. You are so right “the next generation concerns me” — they live day to day and want INSTANT gratification! I hope we are both wrong but I doubt it.
      Enjoy that warm Texan winter — so jealous! (:

      • CanTex on November 13, 2015 at 9:52 am

        Summer’s are nasty here, winters ain’t much fun up there. We made sure our CPP and OAS from our work time in Canada were enough to cover expenses in Canada, with auto-payment for basic bills like condo fees, insurance and taxes. So, we can lock the door and forget it for the winter. Two countries, two sets of income and expenses. Our RRIF payments contribute to our other summer expenses so there’s little cross-border money transfer.

        Planning, it all came down to planning. And lots of it. If something seemed extravagant, like the condo, well, there’s the human factor in there too. Like enjoyment and Canadian family nearby. It all balances out. If our Canadian spidey senses start acting up, we re-evaluate and adjust as necessary.

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