A new year is a great time to reflect and set goals for the year ahead. If one of your resolutions is to retire in 2024, congratulations!
In our experience as portfolio managers, there are four main areas that people who are approaching or living in retirement are concerned about: growth, income, healthcare, and legacy. Planning for each of these areas is key to a fulfilling and financially stable retirement experience.
Here are tips to help you set yourself up for success in each of these areas in 2024:
Growth
When you were in your thirties, your goal for your assets was likely growth. As you start thinking about retirement, your attention shifts to income; however, you cannot afford to discount the continued importance of growth.
Growth is essential to maintaining your ability to fund your lifestyle. Retirement is one of the longest periods in your life. If your portfolio stops growing, you increase your chances of running out of money, especially when inflation threatens to reduce your purchasing power.
The keys to getting the growth you need in your portfolio are what we often refer to as the superpowers of investing: structure and discipline.
The way we achieve growth without taking on too much risk is with something we call the five pillars. You may be familiar with the first three pillars: Canadian equities or Canadian dollar equities, U.S. and International equities, and fixed income. The last two pillars have been used by pension plan strategies like the Canadian Pension Plan for decades: alternative trading strategies and alternative yielding strategies. The mix of these pillars in your portfolio will depend on your personal objectives.
Structuring your growth bucket around these five pillars—and having the discipline to stick to that structure through the highs and the lows—will give you more return for less risk than investing in an index or the market.
Income
It is important to realize that your income strategy is different than your growth strategy. Trying to achieve both goals with the same assets can get messy. That is why we dedicate certain assets to the growth bucket and other assets to the income bucket.
The primary goal of the income bucket is to provide, predictable, sustainable, and—to the extent we can get it—tax efficient income.
But how do you get the cashflow you need? One strategy that has been embraced by many pension fund managers is liability matching. Ask yourself: What kind of lifestyle do I want in retirement? What cashflow do I need to support that lifestyle? What is my timeline for receiving that cashflow? Then structure your income bucket to match your cashflow needs (liability) and your timeline.
And do not forget, not all income is created equally from a tax perspective. Tax will be the single biggest expense for most people in retirement. Your tax strategy needs to be flexible, dynamic, and reviewed regularly because the less money that goes to taxes, the more you have in your pocket to enjoy the lifestyle you want.
Health
We are seeing more and more Canadians paying out of pocket for the quality of healthcare they want in retirement. Those additional costs need to be factored into your retirement plan.
Whether you want to age at home or in a home, there will be a cost associated. If you choose to move into an assisted living facility, what level of care do you want? What level of care can you afford? If you choose to age at home, will you need to retrofit your house to meet your needs? Will you need to bring in home care?
And healthcare planning is not just about choosing a level of long-term care. Who will shovel your sidewalk if you are not able to? What if you need help with cooking or cleaning? If you do not have friends or family members who live close by and are able to pitch in, getting the help you need will come at a cost.
If you do not plan for your healthcare needs and document your wishes, it could impact your ability to get the quality of care and maintain the lifestyle that you want in retirement.
Legacy
Some people amass more wealth than they can spend during their lifetime. They have the responsibility to transition that wealth in a way that protects their family and provides them with the education and resources necessary to use the money wisely.
Transitioning your wealth without proper planning can result in family friction, misunderstanding your wishes, and more money than necessary going to the CRA.
When you look ahead to the coming year, the most important thing is not making clever trades or getting the highest rate of return possible. It is about what your money can do for you. It is about enjoying the lifestyle you want without taking unnecessary risks to get there.
We will be talking about our approach to retirement planning at our upcoming seminar on January 23, 2024 at the Country Hills Golf Club. Click here to register.
