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Retirement Income Planning Workbook What’s Inside: Building a Retirement Vision Retirement is about more than just money What is your net worth? How much are you spending?
Retirement
Income
Planning
Workbook What’s Inside:
Building a Retirement Vision
Retirement is about more than just money
What is your net worth?
How much are you spending?
Welcome to the Retirement Income Planning Workbook. People spend more time planning 15 days of vacations than they do planning for 15 years of retirement. This package is designed to help you plan for retirement. We hope you find this package interesting and enjoyable.
Retirement Income Planning Workbook
Copyright © 2013 Jim Yih
All rights reserved. Printed in Canada. No part of this work covered by copyrights herein may be reproduced or used in any form or by any means – graphic, electronic or mechanical – without the expressed prior written permission of the publisher. For information address: Think Box Consulting, 7614-119 Street, Edmonton, Alberta Canada. T6G 1W3 www.RetireHappy.ca Care has been taken to trace ownership of copyright material contained in this text. The publisher will gladly receive any information that will enable any reference or credit line to be rectified in subsequent editions. This publication is specifically designed to provide accurate and authoritative information in regard to the subject material covered. It is sold with the understanding that the author, publisher, and Think Box Consulting Inc. are not engaged in rendering legal, accounting, investment planning or other professional advice. The reader should seek the services of a qualified professional for such advice. The author, publisher, and Think Box Consulting Inc. cannot be held responsible for any loss incurred as a result of specific investment planning decisions made by the reader. Printed in Canada
Start with the basics Every retirement plan is personal. It’s all about you. As a result, every plan needs to start with some basic personal information. Name: Spouse: Birthday/Age: Birthday/Age: Children: Name: Birthday/Age: Name: Birthday/Age: Name: Birthday/Age: Name: Birthday/Age: Address: City: Prov/State: Postcode/Zip: Are you self-‐employed? Do you have a pension plan through work? If so, how much? Do you have a will, personal directives and power of attorney? How long have you lived in Canada over the age of 18? Do you know your CPP Benefit at retirement?
Planning for Retirement With an aging population, planning for retirement has become one of the most significant financial priorities for Canadians. Retirement happens for everyone but the ones that enjoy it the most are the ones that plan ahead and make the best of what they have. Retirement is not just about money and how much you have saved for retirement but rather about how money, time, health and life come together in harmony. You need realistic expectations, goals and the discipline to make your future plans a reality. To retire happy does not necessarily mean that you have to have lots of money. In fact, there are lots of people with enough money but they are still not happy. Happiness ultimately comes in having a good attitude, satisfaction with the past and a good plan for the future. Happiness tends to come with some level of certainty and predictability for the future. Happiness is about being ready to deal with adversity and uncertainty when it comes. Happiness is about being knowledgeable and prepared for the future in dealing with all aspects of retirement including health, housing, finance, relationships, time management, etc. And finally, happiness is about living a life with meaning and purpose. If planning for retirement is so important, then why do so few people do it? Is it because we lack the time? How about knowledge? Whatever the case may be, it’s time to change the statistics and get people to start investing time and energy into the golden years. This book is about helping to start the planning process whether you are planning yourself or working with a professional.
Building a Retirement Vision When someone asks you "What are you going to do when you retire?" do you know the answer? One of the first key steps to planning for retirement is to have a retirement vision. After all, this makes intuitive sense because whenever you plan, you need to establish your goals, wants and needs first. The clearer your vision, the better the planning process will be. The importance of vision Have you ever tried to do a jigsaw puzzle? What's the most important piece in a jigsaw puzzle? Some would say the first piece. Others would say the corners. Some have even said the last piece. For me, I think the most important piece is the picture on the box. Think about it. Have you ever tried to put together a puzzle without the picture on the box? Where would you start? The puzzle is not impossible without the picture on the box but it sure makes things a whole lot harder and more time consuming. Think of the picture on the box as the vision. Building your retirement vision Here are some thought provoking questions to help you build your retirement vision. 1. Eulogy approach. In this exercise, answering a few questions about your eulogy will help you with your vision by giving you a better sense of who you are and what is important to you. Ask yourself these questions. If you were to write your eulogy, what would you say? What would you want to be said? If you were to write your eulogy 10 years from now, what would you want it to say? 3. Retirement Activities Brainstorming. Part of establishing a retirement vision is to get a sense of what kinds of things you plan to do in your retirement. In other words, what are you going to do with your time? In this approach, you want to
brainstorm different activities. For example, what is your retirement wish list? What do you plan to do with your time in retirement? If you want to dig a little deeper, you may ask yourself what activities you enjoy now. You may also ask yourself what you enjoyed in the past but you are no longer doing now. And finally, you might add what new activities have you always wanted to do but have not done yet? 4. The last third of your life. If you think about it, retirement is potentially a third of your life so what are you going to do with it. If you knew you only had 10 summers left, what would you do with those summers. This exercise really gets you to think about what is important and how to prioritize all the things you want to do. Are you doing the right things with your time? The message here is really simple. It is much better knowing what you want to do in retirement than not knowing. The clearer your vision, the more likely you are to live retirement as the best years of your life. Be prepared, plan ahead and make your retirement a little more predictable.
What is your vision of retirement?
What are you planning to do in retirement? For some people, coming up with things to do in retirement is not an easy process. The challenge can be overcome through a process of brainstorming. One way to brainstorm ideas for activities in retirement is to simply ask yourself three questions: 1. What are some of the activites you enjoy doing now? Chances are if these
are things you like doing now, you are likey to continue doing them in the future, especially when you have more time.
2. What are some activities you did on the past but are no longer doing now? Sometime life has its way of taking us off focus. Maybe retirement could be about picking up some of the things you liked to do in the past.
3. What are some things that you’ve always wanted to do or try but for whatever reason never had the time to start? These things represent perfect opportunities in retirement when you might have more freedom and time.
What activities do you do now?
What activities did you do in the past? (but you are not
doing anymore)
What activities would you like to do? (but have not done
yet)
Life Retirement Planning Life Retirement Planning is the concept that retirement is about more than money. Some of the most recognized facets of retirement life are: 1. Health and fitness. One of the key factors in your retirement success is your
health. After all, you can have all of the love and money in the world, but without your health to enjoy it, your "best laid plans" will be compromised.
2. Financial comfort. It is true that you can't live without money. Many experts who say that you can retire on 60-‐80% of your last year's employment income are assuming that you have paid off your house, or that you have no debts, or that you'll have a whole lot less to do! There is no real rule of thumb on how much money will give you comfort. The only way to figure that out is to realistically assess what kind of life that you want to lead in retirement and then assess the costs associated with that life.
3. Social relationships. Family and friends are part of your everyday life. We need relationships, particularly when we leave the workplace and our work-‐related relationships begin to disappear. Often, our relationships have been developed in the workplace. When that ends, new relationships should be created that will replace what has been lost.
4. Home and location. We all need a place to live. Your home and location refers not only to your house but also your community. It refers to where you spend your time and might include a recreational property, for example.
5. Hobbies and interests. Hobbies and interests are about fulfillment, about doing things that you enjoy and that bring you personal satisfaction. Too often people work for income, not because it provides personal fulfillment. Retirement is the opportunity to spend your time doing things you enjoy.
6. Mental and emotional health. Just as physical health is important, mental health is essential, too.
7. Intellectual Spirit. This refers to your ability to grow and stimulate you mind. Keeping your mind sharp is as important as keeping your body healthy and your spirit sharp.
8. Spirituality. This is often confused with religion. It really refers to your sense of who you are and why you are here. Your view of the world flows directly from the values that you hold and the primary purpose of your life. What is it that gets you up in the morning and makes you want to face the day?
Whether you are retired or approaching retirement, retirement is an opportunity to re-‐evaluate and that is why it is such a key time in your life. Money is a concern but only a part of the bigger picture. Life Retirement Planninig is simply looking and planning life in balance. It is balancing leisure, emotion, finance and physical health in retirement. In other words, when you plan for retirement, you must plan to fulfill all areas of life, not just money. Are you ready for retirement? From a Life Retirement Planning perspective, the answer goes far beyond the issue of money. If you are nearing retirement, make sure you take the time to explore all of these issues in depth. After all, it is in your control to make retirement the best time of your life.
Know Your Worth The definition of net worth is very simple. Your net worth is equal to all of your assets less all of your liabilities. It can be complicated depending on what you consider an asset and what you consider a liability. For example, is your $1,000 computer considered an asset? More importantly, should it be used to calculate your net worth? For the purpose of retirement planning and wealth planning, I would argue that you should not consider the computer as part of your financial net worth. In my mind, your financial net worth is slightly different than your total net worth because you only want to consider assets that may be used as a retirement asset? Why is net worth important? In the process of financial or retirement planning, it is very important to have a measuring stick. In the area of health and fitness, we use weight as a benchmark. If we are overweight, we try to lose some by eating better or exercising more. In financial planning, net worth is one of the most commonly used benchmarks. Your goal in retirement planning should be very simple – While you are in the accumulation phase, your goal should be to increase your net worth every year Do you know your net worth? If you want to have a benchmark for wealth, retirement or financial fitness, make sure your starting point is your net worth. On the following page, you will find a template to determine your net worth so you can take the first step towards a better financial future.
NET WORTH STATEMENT
Name:
Year:
ASSETS
Liquid Assets
Chequing Accounts
Savings Accounts
GICs
Cash Value of Life Insurance
Money Market Funds
Other Liquid Assets
Property Assets
Principal Residence
Recreational Property
Investment Property
Other Real Estate
Long Term Assets
RRSPs/RRIFs
Non Registered Investments
Pension
Business
Other Asset
TOTAL ASSETS A
LIABILITIES
Mortgage
Other Mortgages
Personal Line of Credit
Investment Loans (Leverage)
Student Loans
Car Loans
RRSP Loans
Credit Card Debts
TOTAL LIABILITIES B
NET WORTH (A -‐ B)
RETIREMENT INCOME PLANNING
Income Monthly Annual
What is your gross income?
What is your net income (after deductions)
What is your spouse's gross income?
What is your spouse's net income (after deductions)
How much money do you save?
How much so you spend?
How much do you expect to spend in retirement?
How many years before you plan to retire?
Will your mortgage be paid off by the time you retire?
Will you be debt free by retirement?
Will you still have dependents in retirement?
Do you think your expenses will increase in retirement?
Do you think your expenses will decrease in retirement?
Do you think your expenses will stay the same in retirement?
What do you think will be your biggest expense in retirement?
What is your biggest expense now?
How much income will you have in retirement?
Do you think you will have enough?
Paycheques of retirement
Will you have pension income in reitrement?
How much will you get from Canada Pension Plan (CPP)?
How much will you get from Old Age Security (OAS)
Are you planning to work for someone else in retirement?
Are you planning to operate a business in retirement?
Do you have RRSPs?
Do you have non-‐RRSPs?
Will you use the equity in your house for retirement income?
Know your spending Most people don't know how much money they spend on a monthly or yearly basis. The ones that think they know how much they spend sort of know but typically underestimate. Very few people know what they are spending and the ones that do, typically are in pretty good financial shape.
Tracking expenses takes effort, conscious awareness and ongoing work. Maybe that's why most people don't track expenses or calories. The trick is to keep it as simple and effortless as possible. The key is to turn it into a good life habit.
Name:
Year Month Total Net Deposits Total Net Withdrawals MONEY IN MONEY OUT
January
February
March
April
May
June
July
August
September
October
November
December
TOTAL
MONEY IN Any cash going into the bank account. For paycheques, just include net deposits after deductions.
MONEY OUT Any and all cash going out of the account. This includes bill payments, withdrawals, PACs, etc. Do not include any money going to savings or investments.
Budgeting Master Item Current Target
Mortgage / Rent
Property Tax
Condo Fees
Utilities
Home Insurance
Cleaning
Hou
sing
Subtotal
Mortgage / Rent
Property Tax
Condo Fees
Utilities
Other Real
Estate
Subtotal
groceries
eating out
Alcohol Food
Subtotal
Pension
RRSP
Investments
Savings
Life Insurance
Disability Insurance
Other
Fina
ncial
Subtotal
Medical Costs
Prescriptions
Dental Care
Eye Care
Health Insurance Health Ca
re
Subtotal
Car Lease / Payment
Car Insurance
Tran
spo
rtation
maintenance
Gas
Public transportation
Parking
Subtotal
Pager
Cell Phone
Computer
Clothing
Dry cleaning
Hair cuts / personal care
Gifts
Donations
Pets
Other Dues (professional)
Other
Subtotal
Hobbies
Magazine and Subscriptions
Entertainment
Health and Fitness
Travel/Holidays
Other Recreation
al
Subtotal
Credit Cards
Line of Credit
Personal Loans
RRSP Loans
Other Deb
ts
Subtotal
New Car
Home Renovations
Special Vacations
Wedding
Helping Children
Extrao
rdinary
Expe
nses
Subtotal
TOTAL
The Assumptions One of the most difficult parts or retirement planning is dealing with the assumptions. Assumptions are merely guesses on what might happen in the future. Because we cannot accurately predict or foresee the future, we must make some guesses. Could these assumptions be wrong? Sure but that should not stop you from doing some planning. Planning does not just happen once. It is a process and must be re-‐visited from time to time to see if the assumptions you are using are correct. 1. When do you plan to retire? Most people answer this with an age or a year. Writing down and age or year does not mean you have to retire on that date but again, it gives you something to work towards. I’ve seen many people plan to retire at a certain time but changes in their lives cause them to retire earlier or later. 2. When do you plan to die? Obviously this is a tough one to answer. But think about it . . . if you could predict your date of death, planning would be easy. Life expectancy is a key assumption in planning. One of the reasons the financial industry expects people will need millions and millions of dollars is to retire is because we expect people to live longer. We use statistical life expectancies but it's rare we die on time. What if you live longer?
3. How much do you plan to spend in retirement? Spending really drives a retirement income plan but again, how would you expect to know how much you are going to spend in retirement when many people have no idea what they are going to spend next month. There are some rules of thumb around spending like the 70% of gross income rule (You sill need 70% of your pre-‐retirement gross income). The best way to guess at this spending is to simply ensure that you have an understanding of your current spending and then make necessary adjustments moving forward. 4. How will spending change in retirement? A lot of people assume their spending will stay fairly constant in retirement. Many programs use a straight line assumption that incorprates inflation. In other words spending increases the older you get. Is that really the case? Take a look at 70, 80 or 90 year olds that you know and see how much they are spending. Chances are they are spending some money but just on the basics of life (food, shelter, clothing, health care). Personally, I think spending decreases the older you get but not everyone has to agree with that. What’s your assumption? 5. Rate of return on your investments We like to think we can earn a really high rate of return on our investments but for most people, we have to be realistic. Everyone is different. If you are ultra conservative and you invest in GICs, then you probably have to use a lower return. Regardless of your guess, it is important to be realistic and even conservative.
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