How To Avoid the Most Common Retirement Planning Pitfalls

1. Not completing a thorough financial assessment prior to retirement

Just as a personal trainer would begin every engagement with an analysis of your current fitness level, a Certified Financial Planner can help point out any gaps in your current financial plan.  The areas that can make the biggest impact are tax planning, lowering investment management fees and obtaining professional advice. These are often quick fixes that can make an immediate impact on your overall wealth. A comprehensive financial audit should be priority number one as you approach retirement.

2. Not exploring different scenarios that apply to your personal situation

Knowing if you have saved enough for early retirement is one of the most popular goals we help our clients with. By making financial projections over time and comparing them, we can determine if an earlier retirement date makes sense for you. We explore the opportunity cost of taking your defined benefit pension early and help provide insight into the different options available to you.

3. Not factoring in the increasing costs of medical care

While for most Canadians provincial health care plans cover medically necessary physician and hospital services, there is limited coverage for anything above and beyond basic care. Long term care nursing homes are partially funded by the government, with typical prices ranging from $1,800 to $2,600 a month for room and board. Wait times at these facilities can range from a few months to years in some cases.  Privately operated retirement homes come with a price tag of $2500 to $10,000 per month depending on your location, amenities and quality level of accommodations. Long term retirement projections are necessary to ensure you have a back up plan in case you need extended medical care in the future.

4. Ignoring the benefits of delaying Government benefits such as CPP and OAS

The majority of Canadians are entitled to two retirement pensions administered by the Federal Government: Canada Pension Plan (CPP) and Old Age Security (OAS). While everyone’s situation is different, if you don’t need the money or if you are still working, it often makes sense to delay taking CPP as your will benefits increase the longer you wait.  There is more to consider than just the financial numbers and it is important to consider other factors, such as your current health, projected incomes sources, and future cash flow needs.

5. Reactive Tax Planning

It is crucial that you take a proactive approach to tax planning in order the reap the full benefits of tax sheltering and income splitting in retirement. A comprehensive retirement plan will address these significant aspects of financial planning. Without a doubt, tax planning is the #1 area I feel my clients value guidance from me the most.

6.  Not Having a Plan for Your Downtime

Planning for the non-financial aspects of retirement are just as important as optimizing your financial health.

Entering retirement means having more time and freedom to enjoy the activities you love. Take the time to journal what you’d like to accomplish in retirement. Setting “Lifestyle-Priority Goals” can ensure when you do enter retirement it will be the best years of your life.