Ep # 81 - 5 Common Money Mistakes in Retirement
We discuss the 5 common money mistakes you might be making in retirement, including relying solely on advice from friends and family who may lack expertise in financial matters.
We stress the necessity of comprehensive planning, including consideration of retirement income sources, tax strategies, risk management, and estate planning. We underscore the multifaceted nature of retirement preparation and the need for careful analysis and professional assistance.
What You’ll Learn in Today’s Episode
Don’t Rely on Advice from Family & Friends: This is dangerous due to potential lack of expertise and understanding of individual financial situations.
Seek Professional Guidance: A professional can tailor a plan to your specific circumstances, particularly regarding decisions like CPP payment timing and asset allocation during market downturns.
Retirement Planning is Multifaceted: It encompasses investment strategy, retirement income sources, tax planning, risk management, and estate planning.
Have a retirement "dress rehearsal": Simulate retirement expenses and consider potential cost increases in future projects or expenses, ensuring a realistic assessment of financial needs in retirement.
Comprehensive Planning is Essential: It’s important to have a professional analyze your situation to address various aspects of retirement preparation.
Ideas Worth Sharing
· "Because we trust our friends and family, it makes perfect sense. If I was getting heart surgery, I wouldn't want my friends or family telling my cardiologist how to do it or telling me how I should do it on myself."
· "So taking advice from somebody else who doesn't deal with retirement planning every day and is not working with you to understand your goals and everything else you're trying to achieve, often ends up in advice that is well-meaning, but ill-placed."
· "We want to make sure that you're taking those retirement ideas and discussing them with someone who's informed about financial planning and working with you on your situation in particular.”
Family Financial Advice: Help or Hindrance in Retirement?
Taking financial advice from friends and family can lead to risky financial planning in retirement.
The consequences of mismanaging your CPP and underestimating retirement investment risks might shock you. And what about planning big projects before retirement? The unexpected financial pitfalls could leave you scrambling for solutions. But it's not all doom and gloom. Discover the key to avoiding these mistakes and unlocking a secure retirement future.
We emphasize the importance of personalized retirement investment strategies and stress the value of comprehensive planning.
In this episode, you will be able to:
Avoiding common money mistakes in retirement: Learn how to secure your financial future by avoiding common retirement money pitfalls.
Understanding the consequences of taking CPP early: Discover the impact of taking CPP early and how it can affect your retirement income.
Managing retirement investment risks: Master the art of safeguarding your retirement savings through effective investment risk management strategies.
Planning big projects before retirement: Uncover the significance of planning and budgeting for major projects before retirement to ensure financial stability.
The importance of a comprehensive retirement plan: Realize the value of a comprehensive retirement plan in ensuring a secure and fulfilling retirement.
Retiring Without a Dress Rehearsal
You wouldn't buy a house without a walkthrough, right? It’s the same for retirement. You may have a lifestyle in mind for your retirement, but how do you know if it's feasible or not without rehearsing? Prior planning prevents poor performance and this is why a retirement “dress rehearsal” becomes helpful. You get a chance to experience, for at least a year, how your retirement lifestyle fits with your budget. If it turns out that your plan doesn’t match reality, you have the chance to course-correct. There are hidden costs that might creep into your retirement life. The dress rehearsal means you have time to prepare yourself for surprises.
Pitfalls of Taking Advice from Friends and Family
It’s important to remember that, although our friends and family have our best interests at heart, they are not retirement specialists. They may not have a clear understanding of your unique situation or long-term goals. Often, they are guided by their own experiences or decisions. Many of us rely on family or friends' perceptions, especially when it comes to opting for the Canadian Pension Plan (CPP). However, optimal timing should align with your particular circumstances rather than making choices based on other's experiences or ideas. It's always better to seek financial advice that is custom-made for your needs.
Understanding Annual Expenses
Expenses aren’t exclusive to a particular timeframe. There are monthly bills or costs, but what about those unexpected ones that pop up? A car repair here, a home maintenance issue there, and pretty soon, you're blindsided by a chunk of your savings disappearing on unanticipated costs. It's crucial to gauge monthly spending to have a better understanding of your annual expenses. The exercise isn't just about understanding where your money is going but also discerning patterns and pinpointing financial leaks that could otherwise escape your attention, causing a significant dip in your savings in the long run.
The resources mentioned in this episode are:
Consider consulting a financial planner or retirement specialist to create a personalized retirement plan tailored to your specific financial situation and goals.
Evaluate your retirement income sources, such as CPP, OAS, and investment portfolios, to ensure they align with your retirement goals and lifestyle.
Conduct a retirement dress rehearsal by setting up a separate bank account and living off your projected retirement income for a period of time to assess its feasibility.
Prioritize big projects, such as home renovations, before retirement to avoid unexpected financial strains during retirement.
Seek comprehensive retirement planning that includes components such as investment strategies, tax planning, risk management, and estate planning to ensure a holistic approach to retirement readiness.
Timestamped summary of this episode:
00:00:20 - Pitfalls of Taking Advice from Friends and Family
Joe and Lindsay discuss the common mistake of taking financial advice from friends and family, emphasizing the importance of personalized, professional advice.
00:06:04 - RIFF Minimums and Personal Situations
The implications of making decisions about RIFF minimums based on personal preference rather than personal situation are explored, highlighting the importance of considering individual circumstances and tax implications.
00:11:05 - Retiring Without a Dress Rehearsal
The significance of conducting a retirement dress rehearsal is discussed, emphasizing the need to accurately assess living expenses and cash flow before retiring.
00:12:32 - Conducting a Retirement Dress Rehearsal
Joe and Lindsay provide advice on conducting a retirement dress rehearsal, including the importance of accurately assessing cash flow and living expenses to ensure a smooth transition into retirement.
00:13:01 - Understanding Annual Expenses
Joe and Lindsay discuss the importance of understanding annual expenses in retirement, including extra costs like Christmas, birthdays, and home maintenance. They emphasize the need to calculate annual spending and adjust monthly budgets accordingly.
00:13:51 - Setting Up a Separate Bank Account
The hosts explain the importance of setting up a separate bank account for retirement expenses. By allocating a specific monthly amount into this account, individuals can assess if their budget is sustainable throughout the year.
00:15:33 - Planning Big Projects in Retirement
Joe and Lindsay highlight the mistake of planning big projects in retirement without considering unexpected costs and inflation. They advise completing such projects before retirement to avoid financial strain and unexpected expenses.
00:18:35 - Having a Comprehensive Retirement Plan
The hosts stress the significance of having a comprehensive retirement plan that encompasses investment portfolio, income sources, tax strategies, risk mitigation, and estate planning. They emphasize the need for a detailed withdrawal strategy to handle market fluctuations.
00:22:27 - Importance of Planning Ahead
Joe and Lindsay emphasize the importance of planning ahead for retirement and taking proactive steps to build a solid retirement plan. They encourage listeners to be intentional and clear about their retirement goals and financial strategies.