Five Questions to Start your Financial Plan

As a Financial Advisor, I often get asked variations of the following questions:

When can I retire?

How much do I need to save for retirement?

What is my magic number?

Although I deal with these questions regularly, there is no simple answer. Instead, my role as a Financial Advisor is to help guide my clients through all the potential variables and build a plan that focuses on their specific goals. A holistic planning approach will look at your values and goals and take into consideration both qualitative and quantitative measures. Some of the initial questions I approach clients with include:

1. When would you like to retire? 

Having a time in mind will allow your Financial Advisor to implement realistic savings strategies. If you are looking to retire at 55, then you will need to take a more aggressive savings approach or be willing to minimize your expenses in retirement. If you plan to retire at age 65 or 70, we can likely take a more balanced approach to savings. For a married couple, does retirement happen at the same time? Do you wait until your children are out of high school?

2. Where will you live in retirement?

Housing can play a major factor in your retirement plan. Do you plan to stay in your current house forever? Will you need to do any renovations in retirement? Will you need to downsize from a two-storey house to a bungalow? Is it realistic to expect an influx of cash when you downsize or will the value of the homes be similar. Are you currently renting and would you like to continue renting in retirement? What about a cottage or travel?

3. What government pensions will you have?

Are you currently earning a salary and paying into the Canada Pension Plan? Are you on track to get the maximum CPP or only a portion of it? For 2025, the maximum monthly CPP payment for a 65-year-old is $1,433. Is this realistic based on your situation? The average 65-year-old only receives $899.67 monthly in CPP. By logging into your My Service Canada account, you can see your statement of contributions and pull your CPP pension amount estimate.

Another source of income to consider is your Old Age Security (OAS). Have you lived in Canada your entire life? Do you know that Old Age Security is considered a social benefit, the government provides this payment for low- and middle-income Canadians. If your net income exceeds $90,997, you will start to see a portion of the OAS clawed back and when your net income exceeds $148,451, you will lose your entire OAS for the year.

4. Do you have a workplace pension plan, group RRSP or personal investments?

In the past many employers provided their employees with the benefit of a defined benefit pension plan. A defined benefit pension plan provides a scheduled monthly payment in retirement based on your age, income, and the number of years you worked. As defined benefit pension plans can be very costly and hard to manage for an employer, many employers have switched to defined contribution pension plan (DCPP). With a DCPP there is a set contribution by both the employee and the employer, and the monthly payment in retirement is based on investment returns and not guaranteed. Is your workplace pension enough to support you in retirement? Is it a fully funded plan or is it at risk of being reduced? For those without a pension plan, are you contributing to a group registered retirement savings plan or a personal registered retirement savings plan (RRSP) or a tax-free savings account (TFSA)?

5. What debts will you have in retirement?

What debts are you currently carrying and will they be paid off before you enter retirement? Going into retirement with a balance on your mortgage or with credit card debt can significantly impact your ability to fund your day-to-day retirement expenses. If your retirement is in 17 years, but you have 20 years left on your mortgage, what strategies can you implement to have it paid off before retirement?

These five main questions can help kick start the financial planning process. There are so many more variables to consider and bring together to build your unique plan. Do not be afraid of the process, sit with your Financial Advisor and work through the questions, identify your goals and begin implementing strategies for retirement. There is no cookie-cutter approach to retirement planning. No simple calculation. Every individual and every family is unique.

Let the Financial Advisors at O’Farrell Wealth and Estate Planning of Assante Capital Management Ltd. build your plan. Book a complimentary meeting today.

Source: https://www.canada.ca/en/services/benefits/publicpensions/cpp/payment-amounts.html

Sarah Chisholm is a Financial Advisor with Assante Capital Management Ltd. The opinions expressed are those of the author and not necessarily those of Assante Capital Management Ltd. Please contact her at 613-774-2456 or visit ofarrellwealth.com to discuss your particular circumstances prior to acting on the information above. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. Insurance products and services are provided through Assante Estate and Insurance Services Inc.