Do I Have Enough?
An 8-Step Guide To Your Financial Future [Checklist]

 

Christopher Jardine, CFP®, Bellwether Family Wealth Advisor, has created this 8-step guide to help you answer the question: "Do I have enough to retire?"


 

Do I have enough to retire? What will my financial future look like?

 

These are some of the most commonly asked questions in financial planning, and with all the uncertainty going on in the world due to the COVID-19 pandemic, it has become more prevalent in the past few months.

Anxiety and stress levels have increased significantly—particularly when it comes to finances. For pre-retiree women in Canada, this question can be even more complicated.

 

Understanding the rules

 

Even before COVID-19, Canadian women were at a significant financial disadvantage to their male counterparts. Women lag behind men in savings.

The reasons are complex, but it’s partly because women live longer (79 years for men vs. 83 years for women, according to Statistics Canada), earn less (87 cents to every dollar a man makes), and experience more career disruptions (on average, working 10 years less than men).

Dreams and aspirations are great, but the primary concern for most women is making sure that their money is going to last.

 

Over the years, you may have read or heard about certain rules of thumb to follow, including some of the more popular ones like:

 

70% Replacement Ratio

Based on the “replacement ratio” rule of thumb, you will need 70% of your pre-retirement income in order to maintain your lifestyle after retirement.

4% Rule

You can withdraw 4% per year from your investments and increase it every year by inflation.

Age Rule

You are getting older, so you should invest more conservatively based on the “Age Rule.” You should invest 100 minus your age in stocks.

Sequence of returns

You should invest conservatively because you can’t afford to take a loss. You could run out of money because of the “sequence of returns.” If you have investment losses, there is a chance the investments will not recover.

Cash buffer:

You should keep cash on hand equal to 2 years’ worth of income from your investments to draw on when your investments are down.

 

The problem with these rules of thumb is that they have been handed down from one generation to the next and are not necessarily reflective of the world today. More importantly, they are not reflective of your personal situation.

 

In order to find the solution that's right for your personal situation, Family Wealth Advisor, Christopher Jardine, CFP®, put together this handy 8-step checklist to help you find the right answers to your financial questions.


Your 8-Step Financial Future Checklist

 

A good way to start is by using the following 8-step checklist to create a picture of your financial wellbeing. A spreadsheet is ideal, but a scrap piece of paper and a calculator will work too.

  1. Monthly Expenses:

Establish current monthly expenses by creating three buckets:


      1. Non-discretionary fixed monthly expenses. These are expenses that are non-negotiable and must be paid. Think along the lines of housing costs, food, hydro, medical, etc.

      2. Discretionary fixed monthly expenses. These are expenses that compliment your current lifestyle but could be cut back on or reduced if needed. Think along the lines of clothing, that 400 channel cable subscription you pay for but only watch 5 channels, magazine subscriptions, etc.

      3. Leisure expenses. This is your play money, going out for lunch or dinner with friends, social activities, vacations, etc.

  1. Projected Budgets:

    • From these buckets, it is important to consider how these may evolve over time. In 5 or 10 years, will you still have that car loan? Will you still vacation as much? As with everything in life, financial needs change and creating projected budgets ahead of time allows you to plan effectively.

  2. Sources of Income:

    • Now that your expenses have been established, what are your sources of income? How much will you receive in CPP and OAS? Do you have an employer pension? Is it indexed for inflation? How much do you have in personal savings? Do you receive rental income?

  3. Impact of inflation:

    • When putting together your sources of income, it is very important to consider the impact of inflation (2-3% per year is a good ballpark figure to use). Costs are likely to rise each year, and the impact of these increases over time can be quite large.

  4. Expected Return:

    • Calculating your income from personal savings is the tricky part. The last 10 years have seen exponential investment returns for most investors. It is unlikely this will be the same for the next 10 years. In order to come up with an expected return, we would suggest the following strategy:

      1. You need to understand how your portfolio is invested. In its simplest form, how much do you have in stocks vs fixed income?

      2. Adjusting for lower return expectations, we would suggest you use a 3% annual return for fixed income and 6% for stocks.

      3. As an example, if your portfolio is 50% fixed income and 50% stocks, an assumed annual return of 4.5% is reasonable.

  5. Investment Savings:

    • By now, you will have established how much your investments are worth, an assumed inflation rate, and an assumed return. You also need to consider how long you will live. Unless you have a history of longevity in your family, we would suggest using age 90 or 95. Try our easy to use and understand Retirement Savings Calculator to help you find how your finances will stand up in retirement.

  6. Expected Taxes:

    • At this point, you should now have a clear picture of your expenses and  your  expected  long-term  income.  Now,  you  must  make  an assumption on how much tax you will pay. EY’s 2020 Tax Calculators are great resources but please note that this is a very basic estimate and does not take into consideration any applicable deductions and credits.

  7. Evaluate:

    • Add  up  your  total  income  and  then  subtract  expected taxes  and expenses. If your income exceeds your expenses, then you’re off to a good start.

 

There  are,  however,  other  factors  to  consider  when  evaluating  your  financial  health.  That  is  why  it  is  important  to  talk  to  your Family  Wealth  Advisor  who  can  help  you  conduct  a  more  holistic  assessment of your financial health and work with you to create a plan that will help you achieve your goals.

 

Ready to take control of your financial future?

Request a holistic assessment of your financial health from Chris and get started today.

REQUEST ASSESSMENT

 

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