Even the wealthy worry about retirement

FPArticle 2009 golden egg Even the wealthy worry about retirementCan I afford to retire?

This question, more than any other, is asked by clients approaching retirement.

Individuals balance their spending and savings during their working years to reach a point at which they have accumulated sufficient capital to augment any pension income to support their expenses. That’s retirement affordability.

The retirement affordability equation appears simple. It isn’t. That’s because there are too many variables like life expectancy, future health care costs, investment returns and inflation, etc. that can change materially and have a dramatic impact on whether you enjoy a comfortable retirement or not.

Rob Carrick’s article in the Globe and Mail – The cost of a good retirement — discusses some of these variables and provides a chart showing how long various amounts of capital will last given different spending amounts during retirement.

I prepared a similar spending matrix in a previous blog How much is enough to retire? The main difference is the annual spending amounts I used were significantly higher ($100,000 – $200,000 per year) reflecting the spending habits of our high net worth clients. The math however, is the same. Some observations for the high net worth group are:

  • Personal expenses drive retirement affordability
  • Deferring retirement several years can make a huge difference to a comfortable retirement
  • Inflation is the variable that could pose a very large threat to retirement affordability

So, if you are within five years of retirement, plan accordingly:

  • Take stock of your net worth and prepare a balance sheet
  • Plan to eliminate your debts before you retire
  • Understand your pension benefits and other post retirement income and benefits
  • Prepare a budget of personal expenses highlighting those items that can realistically be reduced post retirement and some which might be added
  • Get some advice and help to crunch the numbers. Remember, it may just be math but because there are so many unpredictable variables you need to ensure you have a cushion. You also need to put the results in proper perspective.

At Newport Private Wealth, we have developed sophisticated and proprietary financial planning models to help our clients analyze the retirement equation and assess the results. If you need help, please contact me at dlloyd@newportprivatewealth.ca.

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