Retirement Myths to Debunk & Key Questions to Ask

posted Sep 23, 2013, 3:37 PM by Janelle deRocquigny   [ updated Oct 24, 2013, 1:28 PM ]


Here As the old adage says, "If you don't know where you're headed any map will do.” This quote underscores the critical importance of beginning your retirement plan and being really clear on your goals and projected outcomes for retirement. There are hundreds of retirement strategies available to us. However, not all of these strategies will be appropriate for your unique situation. One of the key ways of becoming clear on the strategies most appropriate for you is to complete the goal and values clarification process. Later in this post I include a number of questions that you should reflect on as you begin to develop your retirement plan. Reading these questions is the first critical step. 

It may seem obvious that it's important to plan, set goals and get clear on our values. However, it's also clear that many people fail to plan effectively. Why is that? At some level most of us believe that some planning will help us make better decisions and make more effective use of our resources.

In their book, The Canadian Retirement Guide, authors Jill O'Donnell, Graham McWaters and John Page outline some of the main reasons that people procrastinate.


Myth Number One – Financial planning is only for those with lots of assets and significant income, or at least $1 million in investment assets, to justify having a financial plan.

The reality is that people with less money benefit from planning even more than those who are wealthy, simply because they have a greater need of making the best possible use of every investment dollar. Successful management of your income, no matter what size, increases the likelihood you'll achieve your goals.

Myth Number Two – Preparing a financial plan is too expensive.

In fact, the real cost of not planning are the potential mistakes you might make without a plan, such as; unnecessary taxes, interest costs, and risk exposure, or costs resulting from inefficient asset allocation and estate strategies. These issues usually far outweigh the cost of developing a financial plan. Whether the cost of the plan is built into the cost of financial products or services you are using or negotiated fee-for-service arrangement, it's usually worth the expense and will pay dividends for years to come.

Myth Number Three – Planning will take too much time and effort.

A person who plans actually spends less time on financial matters that someone who does no planning at all. People with no plan often themselves lurching from one financial crisis to another. Financial planning doesn't eliminate surprises or adverse developments, but it lets you deal with them better because you know your options. As a result, managing your personal affairs becomes less stressful.

Myth Number Four – Revealing the state of your financial affairs will be too embarrassing.

People who have planned well financially all their lives, without financial help or coaching, are extremely rare. Be assured that there are many people whose affairs are in far worse shape than yours. Like a doctor or lawyer, a qualified financial advisor will help you solve problems constructively, supportively, and ethically. Once you've develop trust with your financial advisor and have overcome the disclosure hurdle, your advisor will become an incredible resource as you navigate the financial issues attached to many of the financial transitions in life (marriage, starting a family, education funding, retirement planning, assisting aging parents, estate planning, divorce or separation, loss of a loved one, and changes to your career).

Myth Number Five – Once you pass a certain age, it's too late to plan.

Some people think that by age 65 or 70, planning is no longer effective. While it's too late to plan for past events, it is never too late to plan for the future. Maximizing your current retirement income, reducing taxes payable, ensuring you have adequate health care and long-term care coverage, if needed, and designing an effective estate plan to reduce costs and ensure your wishes are carried out, are only a few the relevant concerns in your retirement years. A financial plan will help determine whether or not your resources are sufficient to provide for your current lifestyle, if you need to reduce your lifestyle costs or can even increase your lifestyle costs. At all stages of life, financial planning has the same goal; enjoyment of life and peace of mind, knowing you'll be okay and that things will be looked after.

This is a great list to get us started. At this point I'll add another one. People will often fail to plan because they are fearful. They are fearful about what the answer might be. However, once people overcome this fear and start looking objectively at their circumstances, they begin to experience significant piece of mind and clarity about what steps they need to take. This is a much better position to be in than simply wondering whether or not you can achieve your retirement plan.

Questions to ask yourself

Here are a number of questions that will help you get the process started:

1. At what age do you want to have the option to retire? When I say option, I am referring to the date when you will have sufficient investment assets, passive income, and other sources of pension, to sustain your lifestyle so that you have the option to retire if you would like.

2. Do you review retirement as an endpoint or a transition? In other words, many people think of retirement as a one-time event that shifts the person from working for a living to living a life of leisure, and possibly with some contribution back to the community and spending some time with grandchildren. Another definition may include a continuation of employment income. There is a growing trend emerging in which retirees are transitioning from one career to another. Responsibilities may be scaled down, and the time commitments may be reduced, but they never see employment as something that ceases.

3. As you transition into retirement, what will your after-tax expenses be? It is a good idea to break up your expenses between discretionary expenses (travel, hobbies, gifts, entertainment, etc.) and basic non-discretionary expenses. Begin looking ahead and try to forecast the expense items that may be coming up just before retirement or through your retirement years. Some examples could include; home maintenance expenses, upgrades to vehicles, a once-in-a-lifetime travel expense, or recreational property.

4. What are your assumptions around expected returns on your investment portfolio? What are your thoughts about the long-term inflation rates that your retirement plan needs to cope with? You may already have some answers to these questions. However, these questions, especially the question around return requirements, are very difficult to answer without first having gone through some computer simulations looking at your long-term retirement. What are the roles that your advisor can play as to provide computer simulated scenarios that provide guidance on the required rates of return to fund your long-term retirement goals?

5. What are your thoughts on life expectancy? None of us will have a guarantee that we will be here tomorrow. Because we don't know the date we need to make some assumptions when it comes to our life expectancy. Maybe you come from a family with long life expectancy. For some of you, you feel you are lucky if you reach age 80. For many of you reading this, this question doesn't relate to just one of you because you may have a partner or spouse that may survive you. Because of this, your plan may need to incorporate survivor income planning for your partner. Fortunately or unfortunately, we are not given a crystal ball in this area. To engage in the planning process you will need to make some assumptions about life expectancy for you and your partner.

6. What will you do with your time? Transitioning into retirement affords you the wonderful opportunity to have more flexibility with your schedule than at any time throughout your primary working career or the period during which you raised your family. With effective planning, retirement can usher in an exciting transition full of new opportunities. It could mean the exploration and development of new hobbies or the further expansion of existing interests and passions. Like I said in one of the previous points, it may mean the development of new career opportunities. Whatever it means for you, it is extremely important you begin to reflect on this question before you retire, and not after.

7. How do you want your estate to be handled? As you get closer to retirement, you begin to have a clear idea on whether or not you will have estate value that may potentially go to the next generation and survive your lifetime. If this is the case for you, it could create some unique estate planning opportunities. As well, when you reflect on your retirement income objectives, you will need to consider the potential impacts to your portfolio and other assets on your balance sheet (family cottage, and business interests, etc). For example, some retirees have a goal to only live off the growth and income that is spun out of their accumulated net worth and not touch the nest egg. They want to leave it to family or potentially charities that they may be involved in. More often than not, most retirees will need to employ a strategy that involves a combination of drawing both capital and income to fund the retirement cash flow requirements. In other words, they will gradually need to kill the goose that lays the golden egg. Becoming clear on this issue is an important aspect of both retirement planning and estate planning.

8. Have you thought about how you would deal with declining cognitive abilities and physical health? We all hope to be useful - forever. The sad reality is that our biological clock has an inevitable trajectory. We can't fight nature so it's important that our financial planning and retirement planning include a discussion on how we will deal with declining capacity. For many retirees, additional health care costs and community supports are self-funded. However, with an aging population and governments struggling to balance budgets and servicing burgeoning debt loads, more and more people are getting concerned about what level of healthcare supports will be available to them from the publicly funded system. One potential solution is to carry both critical illness and long-term care insurance coverage. It may not be a solution for everyone but it's important that you know your options in this area.

9. Are you thinking about your health? You can do a great job of putting together a fantastic financial plan for retirement. You consulted widely, and you have not left a stone unturned in your quest to develop a comprehensive financial strategy for retirement. But it never occurred to you that part of the retirement plan needed to be a health plan. At the very time that you want to enjoy the fruits of your labor, your health is failing you and your planning was for nothing. Life can be unfair and rob us of our health vitality. More often than not, our health and vitality has been robbed through our own efforts – or lack of effort. When you develop your retirement plan, it is important to think about your health. Are there strategies you can put in place now to maintain functional strength and physical independence? Are their nutritional and cognitive strategies that you can take advantage of, to maintain long-term cognitive function, creativity, and engagement?

There you have it. Nine questions to get you thinking about your retirement plans.

It's my sincere hope that you find this content helpful. If you have any questions, don't hesitate to contact our office by calling 204.977.8049 or emailing Janelle at jderocquigny@assante.com


Assante does not promote “The Canadian Retirement Guide” by Jill O’Donnell, Graham McWaters and John Page and its views shall not be used for product endorsement purposes. Insurance products and services are provided through Assante Estate and Insurance Services Inc.