Financial planning for retirement typically involves various pillars that, collectively, represent your financial life and can help you achieve a successful retirement.
When most people think about retirement planning, they focus on determining whether they’ll have enough money to last through retirement. While that consideration is crucial, it represents only one of the pillars upon which a successful retirement will rest. Let’s look at three of the main pillars:
The first pillar we’ll explore relates to estate planning. This is a broad category that encompasses topics beyond (but still related to) traditional retirement concerns. Estate planning works hand in hand with retirement planning because both actions help you preserve your accumulated wealth so you can meet your financial needs in retirement and take care of your heirs as well.
Having a valid, updated will is key to any estate plan. A will allows you to designate how your estate assets are taken care of and distributed after you die. You also need a will if want to designate a guardian to look after your children.
You’ve spent a lifetime building and protecting your wealth, with the goal of having enough money to enjoy a comfortable retirement. Once you know roughly how much your retirement will cost, you can create your wealth transfer plan. This plan involves distributing your assets to family members, including heirs and beneficiary designations, as well as legacy considerations where you can decide which charitable causes you want to support.
When it comes to intergenerational wealth transfer or legacy planning goals, most people aim to pass along assets in a tax-efficient manner, to help maximize the estate’s value. Important aspects of an estate planning strategy include having a will and making beneficiary designations regarding your estate assets. You may also consider making designations for powers of attorney (POA). Depending on your circumstances, POAs can be used for looking after your financial matters or personal care needs.
The second pillar we’ll look at is insurance coverage. For example, life insurance can help take care of your family’s financial needs when you pass away, and may also be used to cover funeral and other related expenses. Life insurance policies are typically “creditor proof” if you name a beneficiary, so in the event of insolvency or other potential creditor action, the proceeds of your life insurance policy will go directly to the beneficiary without forming part of the estate.
In addition to life insurance, you may also want to consider long-term care insurance as part of your retirement plan. This type of insurance provides coverage if you become unable to care for your day-to-day living needs. The coverage usually includes paying for the cost of certain home-care services or being admitted to a long-term care facility.
The final pillar we’ll consider is income planning. When planning for retirement, you want to ensure that you can create the regular income stream you’ll need for daily expenses, emergencies and other occasional expenses like vacations or home renovations. Before retirement (the earlier, the better!), you should focus on saving money and investing to grow your assets. With a foundation of accumulated wealth, you can turn your attention in retirement to generating an income stream that may cover your expenses for life. Consider income sources like government and company pensions, RRIFs (converted from RRSPs), TFSAs, annuities, savings and investment accounts, rental properties, etc.
Contact our office to discuss how your financial plan can be best constructed, based on your specific needs and circumstances, to adequately address the key pillars of retirement.