Plan your retirement like a dream vacation
Admit it. You're at your desk, or sitting in the comfort of your home, and you start to day dream about your next vacation. It's a great dream, so you linger on the visions of warm breezes, rose-coloured sunsets or whatever suits your fancy, and you're very much there in thought. Chances are, if you really covet this travel destination, you'll make plans to make it come true.
Planning for your retirement is no different a process. Yet, according to the National Survey on Retirement by Desjardins Financial Security, from September 2008, only one in three Canadians has a financial plan for retirement.
Lack of retirement planning doesn't surprise Patricia Lovett-Reid, a senior vice-president at TD Waterhouse Canada in Toronto, one bit.
"People will spend more time organizing their closets," says Lovett-Reid, "and I'm not even joking. What I would dearly like (to see) is putting the same sort of emphasis on your retirement, probably more so because you may have a two-week vacation but you could have a 30-year retirement."
Visualizing your dreams and goals for retirement can be as powerful a drawing force as picturing that vacation spot. When planning for a trip, we usually give a lot of thought to factors such as cost, location, climate, accommodation, transportation and family.
So use that same process to picture yourself doing exactly what you want to do in retirement and the costs involved. "You know, once you start to visualize it," says Lovett-Reid, "then you can start to figure out where you're at, what you need and arm yourself with the right tools" to reach those retirement goals.
Those tools include a realistic view of your income and a budget to make your dream a reality. Like vacations, retirement can be expensive.
Reach your retirement destination
The first step in planning for retirement is to answer the key question of when you want to retire.
If your goal is to retire at age 65, you may not have to sock away as much money as someone who wants to retire at age 55, says Michael Aziz, the Toronto-based regional vice-president of investment products at Desjardins Financial Security. "That's where you have to work out a plan with a financial adviser to know how much money you have to put away each month, each year and how much risk you can take," he says.
You've heard it before, but it's worth repeating: The longer you have to save and take advantage of the power of compounding interest, the bigger your nest egg will grow.
According to Aziz, a lot of people will use a travel agent to research and plan a vacation, but they don't plan their retirement with a professional adviser. Or they pick an adviser that they don't know anything about. "So maybe that warrants meeting a couple of advisors to make sure they understand your goals and have the tools to help you get there," says Aziz.
Lovett-Reid agrees. To those people who tell her how amazing they feel after organizing their closets, she asks, "What if you spent the weekend organizing your finances? Can you imagine how in control you'd feel?"
Before heading for a vacation spot, many travellers opt for flight or health insurance for unexpected mishaps and peace of mind. According to our experts, adding a safety net to protect your assets in retirement is prudent financial planning.
"Something that a lot of people don't actually think about is long-term care," says Monica Olenroot, an independent insurance adviser with DCH Insurance Services in Pickering, Ont. "What happens if a couple retires and all of a sudden one spouse has to go into a long-term care facility or they require in-home care?" she asks.
Care facilities can be quite expensive, so retirement planning can include such provisions, especially for someone who has no family or no family living close by. Another important part of the long-term plan that many people don't consider, says Olenroot, is having a will and a power of attorney.
There is no shortage of investment and insurance products available to provide a source of income in retirement, but buyer beware. Olenroot echoes Aziz's words that seeking the advice of an experienced adviser is critical to retirement planning, especially in today's competitive environment and with quick-click products rolling out.
"By seeking a professional who knows what they're doing and is a specialist, you'll get the right information for your financial situation. And it's building the trust factor with someone who is going to be there to handle things for you," she says.
Diana Cawfield is an award-winning freelance writer, specializing in finance, health sciences and corporate communications.