The COVID-19 pandemic has inspired people to re-evaluate their work and retirement priorities. Let’s face it, the reality of working has changed. People are working from home, many have lost the perks that came with their jobs, and the social aspect of a workplace is gone. On top of this huge change, many people in their early- to mid-50s are also looking at their aging parents with a new perspective. Seeing parents who waited too long to retire and aren’t enjoying their money can lead to a “life is short” mentality and cause people to re-evaluate their own plans - like when to retire.
With all this in mind, Senior Wealth Advisor Nancie Taylor shares 4 key pieces of advice for people thinking about retiring early post-pandemic.
1. Reflect on what’s really important
People are starting to question how much money they really need to enjoy their retirement. Many of them have been able to save a lot during the past year and a half, so they're thinking of retiring sooner with less. I am working with a Member who is 55, married, with two kids finishing university soon. He works in marketing and he traveled a lot before the pandemic. He's definitely missing the social aspect of his job and COVID-19 has been a difficult experience for his family. Now, feeling exhausted, he’s looking at his original plan to work until he was 70, and wondering whether he can retire earlier.
2. Make a detailed budget
When Members are thinking of retiring early, budgeting is the first and most important conversation we have. We need to clarify their budget today, as well as their post- retirement budget. It’s important to examine a person’s lifestyle and determine what they're willing to sacrifice to ramp up the savings needed for early retirement.
When I’m budgeting with Members, I typically give them homework: an Excel spreadsheet to fill out. This is because many people overlook expenses when they’re budgeting. Most people think about their cars and home, but don’t consider things like future medical expenses that pensions aren’t likely to cover. So I often remind people to think about their family medical history and what that might mean for future health-related costs so that we can make sure all of that is covered in their budget. My experience working with Members in this age group has given me insight into what typically goes wrong and what most people get right. Looking at the big picture helps us account for what-ifs and gives a more realistic view of what it means to retire early.
It’s also interesting to note that budgeting doesn’t always come easily to people in their 50s who have good careers, are making a comfortable income, and have paid off their debt. It’s not something they’ve had to give a lot of thought to recently, so it can feel like starting from scratch. For example, I ‘m working with one Member who left Toronto eight years ago after struggling to find good work there as a photographer. He bought a home in Niagara and spent a lot of money renovating it and now he’s in his mid 50s, trying to find part-time work and hoping to retire. Together, we’re trying to figure out the best plan of action. He has a house and a cottage, so should he continue working long enough for his budget to support both properties? Or should he sell the cottage property in this currently favourable market so he can retire more comfortably? When we’re having these conversations it helps that he has options. Talking about retirement budgets is often a harder conversation when a person has no plan B.
3. Talk to your advisor
When thinking about retiring early, many people are afraid of outliving their money. I find that people who get professional advice can often overcome that fear, though. When I work with Members, we look at a few key things: their budget, RRSP, emergency savings, and tax situation. Within their budget, we examine disposable income, and what they are comfortable sacrificing to make early retirement happen. We also look at their carry forward room in their RRSPs. If there is carry forward room, we strategize about how to ramp up monthly savings. I also always recommend an emergency fund. Many people focus on sheltering their money, but it’s important to have money available if something unexpected happens. For Members who own a home, a Home Equity Line of Credit can act as a back up to the emergency fund and it’s especially beneficial right now, when interest rates are low. Then, we discuss their tax situation. Do they plan to draw out retirement income funds? Do they have a TFSA? Having a plan for taxes is critical for early retirement.
4. Be honest and brave
For many people, retiring early can feel overwhelming. But anything is possible with the right plan, so don’t let fear stop you. Being honest with your advisor about your priorities, your worries, and your plans is key to success. Together, you can plan early and in as much detail as possible so that it’s much easier to manage and budget each stage of your retirement. After all, you could have 30 to 40 years to fund - and to enjoy.
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