To help secure the retirement you want, take a fresh look at numbers and scenarios.Getty Images
Retirement is supposed to be the reward for a lifetime of work. For many Canadians, it has become another risk to manage.
Tariff wars, financial uncertainty and recession worries have roiled markets and investment portfolios. That has put a damper on retirement plans for some. Others in the workforce in their 50s or 60s are eyeing the economic impacts on their sector, and on potential job losses that might force an earlier than expected retirement.
Even if your retirement plan hasn’t felt the pressure yet, it’s time to stress test it. Here are four steps to take.
Track your spending now
Start with the foundation: budgeting 101, says Doug Nelson, a certified financial planner based in Winnipeg. That includes your living needs (food, shelter, transportation) plus your lifestyle wants (traveling the world, honing your pickleball game).
It’s a basic step, but one that many people ignore. A recent national study found that 70 per cent of Canadians surveyed do not use budgeting tools to help them track and manage their finances.
The results of such an exercise may be an eye opener, but “when you know your expenses, you can adapt to your changing circumstances,” Nelson says.
Taking stock of spending today can help you get to a better place no matter when retirement actually arrives.
“It’s the sort of thing I often highlight for senior executives in their 50s,” says Jason Heath, a fee-only certified financial planner based in Toronto.
He says losing a high-salary gig is a common fear among this demographic. If they do, they’re unlikely to be able to ever replace that level of income. “But if you ramp up your savings and decrease your spending now, and you get used to it, that makes it much easier to maintain in retirement,” Heath says.
Sketch out your retirement income sources
Part of grasping retirement readiness is crunching all of the current and future numbers: your investment portfolio, Canada Pension Plan (CPP), Old Age Security, workplace plans and any other income-generating assets. This is the time to take a deep dive on your portfolio and its construction.
“Your investment risk tolerance may have changed if you’re shifting from accumulation to decumulation,” says Ian Wood, a certified financial planner in Winnipeg.
Some people may feel they need to draw on investments earlier than anticipated, before becoming eligible for government pensions. That’s why it’s vital to look at the big picture for income. For instance, “Those eligible for workplace pensions may be able to keep their portfolio intact for longer-term needs,” says Mr. Heath.
Failing that, you might consider temporary alternative sources of income. With recent equity market declines, this may not be the ideal time to rebalance and to sell stocks to raise cash.
Get a little credit
Among those alternative income sources is a line of credit (LOC). If you don’t have one yet, consider applying now.
“In the event of a job loss, where you decide you need access to a line of credit but don’t have one, the bank isn’t going to give it to you because you have no income,” says Mr. Heath.
An LOC can be handy in other instances of a sudden transition from work to retirement, he explains. For example, a large severance might rocket you into the highest tax bracket of your life. That has an impact on any withdrawals from registered accounts.
In this case, an LOC could provide additional tax-free cash. Then, the following tax year, you can withdraw from your RRSP to repay the LOC, incurring less tax, Mr. Heath explains.
Understand the impact of large early withdrawals
Big drawdowns from a portfolio early in retirement can have an outsized impact on your long-term retirement picture, Mr. Nelson says. You aren’t withdrawing just that money, but its future value.
Consider a scenario where you’re withdrawing an additional $30,000 from your RRSP. If that money was to earn 7 per cent in the RRSP, in 20 years it would have turned into more like $120,000.
Insights like these that might lead to different decisions, such as drawing on a workplace plan or CPP earlier to preserve invested capital for the long-term. Some retirees might decide to find part-time, reduce spending, withdraw less from retirement savings, or do a combination of all three.
“There’s no one right or wrong answer,” Mr. Wood says. “Sometimes, the process includes facing the difficult reality that not all goals are financially attainable.”
Plans aren’t static. Running the numbers with a financial planner and testing various scenarios can inform decisions – especially if retirement arrives earlier or later than expected. The outcomes can make for tough conversations. Still, “It’s far better to have them while you still have choices, not when those choices have been taken away,” says Mr. Wood.