Being ready for change is key in retirement planning

Managing risk is an important consideration

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“Retirement is the most vulnerable stage in a person’s financial life,” says Faisal Karmali, a partner in the Popowich Karmali Advisory Group at CIBC Wood Gundy, a group that specializes in helping families and entrepreneurs transition or retire.

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“You depend on your savings to live your lifestyle, which is completely different from when you worked full-time.”

Willis Langford, a retirement income planner at Langford Financial Group, agrees.

“As you transition into retirement, it’s really more about managing risk than anything else. Risks change constantly. A year ago, we were looking at a runaway stock market, and now there’s a war in Ukraine, inflation we haven’t seen in three decades, and the stock market is down 10 or 15 percent.”

While some aspects of retirement are fun to think about, all factors need to be considered. According to Karmali, “When people first come to us, they’re focusing on the first 10 or 15 years of retirement – ​​the ‘fun years’ – but they need to think about the next phase, the ‘not so fun’. years’, when they start to slow down, and the last phase, which can be very challenging.”

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Langford advises against relying on a windfall as an inheritance, because even if you’re sure it will happen, you don’t know when. He also suggests that you consider equity in your home as a resource for the last stage of your retirement years – to cover costs related to health care and assisted living. He points out that reverse mortgages, which are very popular, can certainly help you access real estate, but so can a real estate line of credit.

“This piece of risk management needs to be constantly revised,” says Langford. “Are we dealing with too much risk? Don’t we have enough risk? The risk-free rate of return is now 1.25%, as in a GIC. With inflation at six percent, that means you’re still losing ground. The more sources of income you have, the better you can manage your risk.” He adds that “annuities are now more in vogue” because of their improved performance.

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Encore Lifestyles Faisal Karmali
Faisal Karmali, a partner at CIBC Wood Gundy’s Popowich Karmali Advisory Group, says that with people living longer these days, many entering retirement are also keeping part-time work. CHRISTINA RYAN

Karmali tells her clients to think of four different “buckets” of income for mutually exclusive goals: One goal is to provide income or cash flow to meet day-to-day needs. Another is for growth, to increase your wealth over time to fight inflation. The third is the “health bucket” to cover healthcare costs. The fourth is “the legacy bucket”, the one you want to give to your loved ones or a charity.

The fact that we generally live longer and healthier has redefined retirement, with another important asset to consider: your ability to leverage your skills and experience to supplement your income. An avid golfer could earn extra money as a golf marshal. A retired office worker can use DIY skills to run a small home improvement business.

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“This is absolutely the new way of looking at retirement,” says Karmali.

Another strategy is to simplify your life, or “scale it right”. Some retired couples are finding that living on less, like a smaller, more manageable home, is the key to a happier life.

Retirees should also try to simplify their investment portfolio where it makes sense. For example, many Canadians have similar portfolios, such as mutual funds, but with many different financial institutions. It’s better to simplify this and put them all in one. This strategy facilitates the management of investments, including the distribution of an estate by an executor.

Regardless of how you envision retirement, the key is to plan for it. As Langford points out, “We have no control over events in the markets or the world. But if you have a plan, you can be assured that no matter what happens, you will be fine.”

This story was created by Content Works, Postmedia’s commercial content division.

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