How to retire happy

How to retire happy

By James Parkyn - PWL Capital - Montreal

Retirement can be financially and psychologically stressful. Here’s how to make a smooth transition

Canadians are retiring in greater numbers than ever, and they’re enjoying longer, more active lives while retired. Their main concern is often not money, but what to do with all their newfound time.

It can be quite a challenge. After focusing for decades on career and saving money, now they have no job to occupy their time and they often wonder about their purpose in life.

Our Capital Topics podcast series addressed retirement a couple of times, and there was such strong interest that we decided to follow up with a more comprehensive eBook. I’m excited to announce that it’s now available.

Financial and psychological questions

My eBook “The New Retirement” covers both financial questions and the sometimes-trickier psychological ones. Clients of all ages frequently ask us about both types of issues.

They wonder how much income they’ll need for retirement and how much they can safely spend. A lot of their questions, however, are psychological.

How can they transition to a retirement lifestyle? How will they find meaning, foster good relationships and stay healthy?

It’s not just older people asking the questions. It’s gratifying to me that younger clients are responding positively to the eBook. They not only want to help their parents prepare for retirement, but they also realize they need to think about the same dilemmas themselves.

Top retirement regret: lack of connections

The challenges were highlighted by Rob Carrick, the personal finance columnist at The Globe and Mail. He asked his retired readers to share their biggest regret.

Money wasn’t at the top of the list. In fact, only 5% said they regretted not saving more for retirement. Instead, leading regrets included failing to work harder on connections with family, friends and community. Many also wished they had thought more about how to fill their days.

In over 25 years of experience, I’ve had many conversations about the same things. Retirement for most people is an abstract destination. We work hard to put away money, but we rarely think in depth about how we’ll spend two, three or even four decades in retirement.

Planning for retirement happiness

I find the happiest retirees have often done just that: They thought ahead about retirement and did a little planning for how they want to live. If you’re already retired, don’t worry; it’s never too late to get started on this. Embracing the future with a plan helps with any big step in life.

Where do we start? First, look at the big picture: your vision for retirement. Who are you as a person? What are your retirement goals? How will you accomplish them?

The eBook includes a checklist of eight questions to clarify this vision.

1. When should you retire?

2. Where will you live?

3. How will you keep healthy?

4. How will you maintain and improve relationships?

5. How will you fill your day?

6. What other claims will there be on your time (e.g. managing finances, taking care of your household or loved ones)?

7. How will you manage stress?

8. How will you give back to the community?

Paying for retirement

Once you define your retirement vision, it’s easier to figure out how to pay for it. The financial transition is of course another challenge.

It’s important to consider two questions. How much income will you need in retirement? And how much can you safely withdraw from your savings each year?

We often hear that you should aim for 70% of your pre-retirement income before taxes to maintain your lifestyle in retirement. This may apply for some people, but not for others. Leading Canadian retirement expert Malcolm Hamilton says most Canadians will do just fine with less than 70%.

The 4% rule vs a tailored approach

As for how much you can safely spend, it depends on the person. For some, the 4% rule applies. It states you can spend 4% of your nest egg in the first year of retirement and then adjust the dollar amount for inflation each year with minimal risk of running out of money.

For many retirees, a more tailored or flexible approach is best. Our team helps clients create a retirement financial plan based on their specific retirement goals, spending, taxes and estate planning.

Then we follow up regularly to review portfolio performance and evolving personal needs, and adjust spending and withdrawals accordingly.

Happy retirement is within reach

The good news is that many people can afford to spend far more in retirement.

The fact is that a happy retirement is within our reach, especially with a little planning. Thinking about the psychological and financial challenges can smooth the transition and help you enjoy many healthy, active and meaningful years, connected with family, friends and community.

They maybe even be some of the best years of your life!

Find past blog posts, our eBooks and podcast on the PWL Capital, Team Parkyn-Doyon La Rochelle’s web site and on our Capital Topics website. And download your free copy of my eBook The New Retirement.

TAKE ADVANTAGE OF THE EXPERTISE OF JAMES PARKYN AND HIS TEAM TO PLAN YOUR RETIREMENT WITH PEACE OF MIND.

The Challenge of Ensuring a Secure Retirement for All

The Challenge of Ensuring a Secure Retirement for All

By James Parkyn

Government pensions have been much in the news lately and that’s not surprising given the demographic headwinds hitting retirement plans around the world.

The most dramatic events have been in France where there have been widespread, frequently violent protests against a government plan to raise the pension age to 64 from 62.

In the U.S., there’s an acrimonious debate going on among the political parties about a looming funding crisis for Social Security. The issue came into sharper focus recently with the release of a government report showing that Social Security won’t be able to make full payments to retirees starting in 2033 unless Congress does something to shore up its funding.

Meanwhile in Quebec, last month’s provincial budget introduced changes to the Quebec Pension Plan. Among the changes, the government moved up the latest age at which a QPP recipient can start receiving an enhanced pension, advancing it to 72 from 70. As well, Quebecers who are still working at 65 and older, and receiving a pension, will be able to opt out of contributing to the QPP.

The common factors in all these developments are an aging population, the retirement of the large baby-boom generation and longer life expectancies.

The OECD highlighted just how widespread pension problems are in its Pensions at a Glance 2021. It warned that “putting pension systems on a solid footing for the future will require painful policy decisions: either asking to pay more in contributions, work longer, or receive less pensions. But these decisions will also be painful because pension reforms are among the most contentious, least popular, and potentially perilous reforms.”

While demographic trends are challenging for Canada’s economy, it’s important to note that actuarial projections for both the QPP and CPP show their funding is on a solid footing for many decades into the future. (The QPP changes are mainly aimed at keeping more older Quebecers in the workforce, not shoring up its finances.)

However, the funding picture isn’t as rosy for the other principal government pension plan in Canada – Old Age Security. Unlike the other plans, OAS – and the Guaranteed Income Supplement for low-income retirees – are funded from the federal government’s general revenues, rather than a pool of accumulated savings.

As more baby boomers retire, these plans are taking an ever-larger chunk of the federal budget. OAS and GIS together already make up Ottawa’s largest spending program at nearly $60 billion in 2023-24.

Given their high cost, could OAS benefits be scaled back or the retirement age increased? It’s possible, but past attempts have proven a tough sell. Older readers will remember the famous “Goodbye, Charlie Brown” exchange between retiree Solange Denis and then prime minister Brian Mulroney that sank a 1985 attempt to limit OAS’s inflation protection.

More recently, a 2012 plan to move the OAS eligibility age up to 67 from 65 by Stephen Harper’s Conservative government, was reversed by the Liberals. Far from reducing OAS benefits, the Trudeau government increased payments in 2022 by 10% for those 75 and over.

One area where change may be in the offing is in how Registered Retirement Income Funds (RRIFs) are regulated. The Finance Department is currently studying potential changes to RRIF rules.

Several groups have advocated raising the conversion age and reducing or eliminating mandatory withdrawals as a way of ensuring that seniors’ savings last throughout their retirement years.

Currently, Canadians must convert their RRSPs into RRIFs by the end of the year they turn 71. They are then required to withdraw a rising percentage of their RRIF each year, which is taxed as income.

In a submission to the Finance Department, Laura Paglia, CEO of the Investment Industry Association of Canada, recommended raising the age at which RRSPs must be converted into RRIFs and reducing the RRIF annual withdrawal rates with the goal of abolishing them entirely.

“The existing rules date back to 1992 when interest rates were higher and seniors were not living as long,” Paglia writes. “Today, it’s unlikely real returns on safe investments will keep pace with the withdrawals. Seniors have a higher chance of outliving their savings.”

“Unnecessary RRIF payments may even trigger clawbacks in retirement income support programs such as Old Age Security (OAS), the Guaranteed Income Supplement (GIS) and provincial supplements, causing some seniors to forfeit some or all of the government benefits they might otherwise have received.”

It’s unclear how Ottawa will come down on the issue of modifying RRIF rules, given the potential impact on government finances. What is not in doubt is that pension plans and how retirement are funded will remain front and centre as the population ages and the number of retirees grows.

Steps you can take to manage the risk due to cognitive decline

by James Parkyn

Cognitive decline is a topic most people would rather not think about, and that’s the danger when it comes to preparing for this risk.

Diminished mental capacity can lead to a devastating loss of savings built up over a lifetime due to poor bad decisions, unfortunate misjudgement or financial exploitation.

With the large baby-boom generation growing older, it’s a subject that’s starting to gain more attention. Indeed, a recent article in the Wall Street Journal called cognitive decline the biggest financial risk facing baby boomers.

The Canadian Securities Administrators (CSA), the umbrella group for the country’s securities regulators, has published new rules for registered investment firms and advisors to enhance protection for older and other vulnerable clients.

The following rules will come into force at the beginning of next year:

• Trusted contact person—Registrants (firms and advisors including PWL Capital) will be required to take reasonable steps to obtain the name and contact information of a trusted person from clients as well as their written consent for the trusted person to be contacted when there are concerns about financial exploitation or the client’s mental capacity to make financial decisions.

• Temporary holds—A regulatory framework is introduced to guide registrants in placing a temporary hold on transactions, withdrawals or transfers in circumstances where they have a reasonable belief that there is financial exploitation of a vulnerable client, or where there are concerns about a client’s mental capacity to make financial decisions.

The stakes are high for seniors and their families. Canadians who are 65 or older now represent nearly 17% of the population. They control $541 billion in non-pension financial assets, representing 39% of such assets controlled by Canadian households, according to Statistics Canada data cited by the CSA.

The Wall Street Journal article reports that rates of mild cognitive decline and dementia increase from a combined 12% for ages 70 to 74 to 45% for those 80 to 84, according to a report by the Center for Retirement Research at Boston College.

Mental capacity can diminish gradually and may not immediately affect a person’s ability to perform routine financial tasks such as paying bills. However, it can make complex or unfamiliar decisions even more difficult, including buying and selling investments, calculating asset allocations and efficiently managing withdrawals from registered and taxable accounts.

Do-it-yourself investors are of particular concern. The use of discount brokers has rocketed during the pandemic and DIY investors typically have little or no contact with an investment advisor.

The WSJ article notes: “Do-it-yourself boomers may be more vulnerable in some ways because they’re calling the shots solo, without help from wealth advisers. So, if they go off the rails, no one else may know. ‘That’s the danger with do-it-yourself investors—they may be overconfident,’ says Michael Finke, a professor of wealth management at the American College of Financial Services.”

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 At PWL, we believe it’s important to have a long-term plan to mitigate the risk exposure due to the possibility of cognitive decline. In putting your plan together, you should involve your loved ones and professional advisors, so they understand where your assets are located and your wishes for their management.

Here are some steps you should consider when planning in the event of diminished mental capacity.

• Simplify your finances before possible cognitive decline begins. This may include reducing the number of accounts you have, selecting simpler investments and transferring investments from DIY accounts to advised accounts.

• Identify a trusted advocate and an alternate who understand your financial objectives and will act as your trusted contact person. These may be family members, close friends or outside professionals, such as accountants or lawyers. However, it should never be the investment advisor who is managing your investments.

• Regularly review and update any general or limited powers of attorney you currently have and get an enduring power of attorney (or mandate of protection in Quebec) that will be used if you lose the capacity to manage your affairs.

• Collect either in a binder or an internet vault a list of financial goals and all your financial account numbers and passwords as well as a list of regular monthly bills and any other important information and records.

For more information on this subject, please listen to our discussion in episode 22 of our Capital Topics podcast.

We are sensitive to the concerns people have about cognitive decline and the many issues it raises. Please contact us if you wish to discuss how we can help you prepare yourself or your loved ones for this unfortunate possibility.