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 Planning for the two phases of your retirement

Monday, October 17th, 2011

When you take the big leap into retirement, you will hopefully enjoy many years of active living. Although it would be wonderful if this continued throughout our entire retirement, nature has other plans for us! More likely we will have 10 to 15 years of active living and then we gradually start to slow down and health concerns might start kicking in. This type of retirement living is entirely different from active retirement living.

When we are retirement planning for women for these years, we need to take this into consideration and consider how much in retirement savings we really need. The concept of a comfortable retirement will change year to year depending on what phase we are in.

In other words, needing the same fixed amount of income per year, every year, throughout your retirement is not a reality. Your retirement planning needs to include two different phases.

Although there is not a set age from when active living turns into “slower living,” you will hopefully have at least a good 10 years of phase one, unless of course you have serious health issues when entering retirement. If that’s the case, then static costs might be a reality.

So let’s assume you have 10 years to take up hobbies, travel and be physically active: What will this cost you?

The first step in retirement planning for women is to assess all your “essential costs” or costs to keep the household afloat. This will include your mortgage or debt payment, taxes, insurance, utilities, maintenance, food and personal essentials.

The second step is to start calculating the costs of the activities/hobbies/travel/entertaining you want to pursue. Add the two together and you will have a good idea of what you will need after tax for the first year of your retirement. You then need to consider the cost of living or inflation rate for each year in phase one of retirement. An inflation calculator or your financial advisor can help to determine what you will need for each year of the 10 plus years of active retirement.

For example, if you need $50,000 in year one, at a 3% inflation and you assume these costs will stay relatively stable for the next 10 years what will you need in year two, year three, year four and so on?

• Year 1 $50,000

• Year 2 $51,500

• Year 3 $53,045

• Year 4 $54,636

• Year 5 $56,275

• Year 6 $57,963

• Year 7 $59,702

• Year 8 $61493

• Year 9 $63,338

• Year 10 $65,238

Total income needs over a 10 year period amounts to $573,190.

How much of your Government pensions, company pensions and annuity income will cover this? The difference will have to be met by your savings. Again your financial advisor can provide full calculations on this.

The second phase of retirement should be less costly as you’re most likely not as active. You’ll need a different retirement planning for women strategy. You will still have the fixed or ‘essential costs’ to cover and hopefully your pension income will be enough to meet these needs. Again, if it doesn’t they will need to be met by your savings. So if your fixed costs were $20,000 in year one of retirement you will need to figure in inflation as well (3% is what is common today).

So assuming you enter phase two in 10 years and need $20,000 in today’s value to cover the basics you will need approximately $26, 879 in year one of the ‘elderly phase of retirement’.

• Year 1 $26,879
• Year 2 $27,686
• Year 3 $28,517
• Year 4 $29,372
• Year 5 $30,253
• Year 6 $31,160
• Year 7 $32,094
• Year 8 $33,056
• Year 9 $34,047
• Year 10 $35,068

Total income needs over a 10 year period amounts to $308,812

If you live for 20 years in active and elderly phases of retirement (10 years in each), and need $50,000 for each active year (in today’s value) and $20,000 for the elderly phases of retirement, you’ll need approximately $882,002 in savings to fully cover both phases of your retirement. Assuming that you have no pension coming in, you need to figure out how much of your Government pensions, company pensions and annuity income will cover this? The difference will have to be met by your savings.

It really is best to speak with your BC financial advisor for women to get an accurate picture of your personal retirement needs.

One last note: the additional costs in the second phase in retirement could go up considerably when additional care or help is needed. For example, you may want to stay in your home as long as possible and so you need someone to cut the grass or care for the garden for you. Maybe you need help with cleaning and cooking. Or someone to come in and provide care with health issues you are having. This can get quite costly. Alternatively, you might consider moving into a retirement community or may need to go into a care home. You may be able to receive some Government subsidies on the latter.

Depending if you choose private or public care facilities this can get quite expensive. Maybe selling the family home will cover these costs. The best advice I can give is to make an appointment with your financial advisor to get a realistic idea of what your retirement will look like in financial terms. Once you have your plan in place, be sure to review it annually especially if significant changes to your health or lifestyle have occurred.

Image Credit – SCA Svenska

Is your marriage ‘financially’ sound?

Tuesday, December 1st, 2009

Finances and Marriage is a Marriage of its own

The merging of two financial lives into one can create havoc on even the strongest of relationships and especially if money talks were never tackled beforehand. Ideally, financial discussions should have happened long before the marriage; however, it is never too late to try to understand your partner’s feelings about money and how compatible they are with yours.

The following quiz can help provide some insight into you and your spouse’s financial compatibility

1. Do you have some sort of realistic budget or a spending plan in place that you are both accountable to?

2. Are you comfortable with your spouse’s spending habits?

3. Do you argue over monthly bills?

4. Do you and your spouse discuss major financial decisions before they are made?

5. Do you and your spouse have a plan of attack in case one of you should lose your job? (I.E. Currently live off of only one income and bank the other)

6. Do you and your spouse share in the responsibility of managing your financial affairs?

7. Do you and your spouse regularly discuss your finances including your short and long term financial goals?

8. Do you and your spouse share the same views towards debt and savings?

9. Are you and your spouse both actively saving for retirement?

10. Do you and your spouse send the same message about money to your children?

Ideally, the answers to all the above questions should be yes.

To achieve complete financial unity may not be a realistic goal for many couples but to achieve greater financial compatibility is. However, this does require a lot of work. Here are a few tips to help improve your financial compatibility:

· Devote more time to financial discussions and to goal planning.

· Define what each of your financial responsibilities is.

· Start making joint decisions about how your money is to be spent.

If you are finding it a challenge to have these important money discussions you may want to seek the advice of an experienced financial planner. A financial planner can help you identify differences you may have and how you can work towards finding a happy medium, which is valuable and meaningful to you both. When there is mutual understanding about financial goals, couples most often will work together to achieve them resulting in fewer money confrontations. You can then redirect such valuable energy towards building a more positive and prosperous future together.

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A man is NOT your retirement plan!

Tuesday, March 10th, 2009

I always advise women of two things, first take care of your personal finances throughout your years ‘as if you had to’. And  second, save regularly regardless of your financial health. This was the adage of a client I dealt with years ago. A lesson learned when her husband of 25 years walked out and left her and their 3 kids in a state of financial shock. As she said, “how I wished I had paid attention to our finances over our marriage”.  Twenty years later she is retired and fulfilling her dream of travel.  (more…)

Why women need to plan for their own retirement!

Tuesday, March 3rd, 2009

As women, we are likely to outlive our spouses or partners by an average of 5 years. Although this may seem financially insignificant when planning for a 20 to 25 year retirement, it could potentially be our most expensive years.

Things Women Need To Know (more…)

A new year, a new start

Friday, January 30th, 2009

By the time we have surpassed our late thirties, early forties and ventured well into our mid-life years we will have likely experienced many life defining events.

‘We merged our lives with others, married and had children. We’ve survived divorce. We became empty nesters. Or perhaps we stayed single but had meaningful relationships along the way.  We started careers, changed careers and ended careers. We saw friends come and go. We’ve experienced the pain of bereavement as well as the joys of new life.’ (more…)

The basics on the new ‘tax free savings accounts’

Sunday, November 30th, 2008

Things to know about the new Tax Free Savings

• Starting January 1, 2009, the Tax Free Savings Accounts are available for Canadian residents who are at least 18 years of age.
• You can contribute up to a maximum of $5000 a year. Any unused contribution room gets carried over to the following year.
• Withdrawals from your Tax Free Savings Account will not affect your ability to qualify for Federal income tested benefits like the Child Tax Benefit or the Guaranteed Income Supplement.
• You can open a Tax Free Savings Account and invests in GICs, mutual funds and other investments and not be taxed on any of the growth or earnings.
• You can have more than one Tax-Free Savings Account with different institutions but you cannot exceed your allowable contribution limit. (more…)

Live by design – how to create the life you want

Wednesday, September 24th, 2008

Are you living the life today that you envisioned you would be living 5, 10 or even 20 years ago? Are you content with most, if not all, of the many components that make up your world: your family, friends, career, health, finances, spirituality and community? If yes congratulations, that is no small feat to accomplish and probably didn’t happen by chance. Most likely you achieved this through purposeful goal setting, hard work and perseverance. (more…)