Start earlier rather than later Part 2

If everything goes well for us, we will make it through the stages of retirement in good health and will remain active and will have lots of things to keep us happy.  So as we plan for retirement we should develop a personalized spending estimate based on your interests and planned activities. What do you want to do, well, first I think you should decide the lifestyle you want in retirement, including where you will live. Many of us stay in our family home, but some of us downsize or decide on a nomadic lifestyle and just travel. Whatever you do, sit down and estimate its current and future cost.  Your spending will not stay the same,  and you should adjust for inflation, year after year.

While most of us spend less as we age because we become less active and have done those once-in-a-lifetime activities that may not be you. For most people, spending steadily declines after age 75 but starts to increase between 80 and 85 because of medical and long-term care expenses.

After estimating the spending and looking at your sources of retirement cash, you might need to modify the expected activities to make spending match income and assets. When you are planning for your retirement think about inflation, which has averaged about 3% a year over the last few decades. Most of what you’ll spend money on in retirement will increase in price over time. When planning your retirement lifestyle also increases your retirement readiness, preparing you psychologically for the changes retirement will bring.

Health and medical costs will increase as we live longer, We do know that on average most of us in North America will spend between 2 and 3 years needing extra medical care. The wildcards in most retirement plans are medical expenses and long-term care. Their timing and amount are unpredictable. We underestimate these costs and overestimate what our health care and other government programs will pay for because we do not do our research well enough. One of the best ways to control retirement medical expense spending is to maximize insurance coverage. Investigate long term care insurance. In Canada with the rising cost of care and the coverage gaps that exist in provincial health insurance plans, the expenses for long term care can easily add up to thousands of dollars:

• Out-of-pocket costs for a long-term stay at a government-subsidized nursing home can reach as high as $2,161.71 per month.

• The average cost for a room in a privately-owned retirement residence is $1,527-$4,774 per month for a semi-private room and $1,600-$7,750 for a private room.

In Canada, the full cost of long-term care received at home or even in subsidized facilities is not covered by provincial health insurance plans. No coverage is provided for privately-owned retirement residency. So plan to buy or at least investigate this type of insurance. 

Sure, your monthly expenses will be higher because of insurance premiums but your potential maximum out-of-pocket expenses will be lower. If you don’t buy the insurance, you should save more and spend less on other things. You’ll need a cushion in your nest egg for large medical expenses. 

You should have enough guaranteed lifetime income to pay fixed, basic expenses. By having that amount of money you will reduce the stress of retirement. In Canada, The Canadian Pension Plan is the only inflation-indexed guaranteed lifetime income for most people. However, the rules have changed for when you can collect your Canada Pension Plan, so don’t make a fast decision on when to receive it. This is an area that you should research and when you make your choice consider it very carefully.  The right choice can add tens of thousands of dollars of lifetime income.

Even when you retire you need investment and a spending strategy. Of course, these will have to be adjusted as circumstances change.  We plan our retirement but we forget that once we are retired we have to have a spending strategy or we may run out of money too soon.  We believe that we can spend 7% or more of our retirement portfolio each year without the risk of running out of money. You need to establish a spending policy.  I have a spending strategy and it is to spend about 6% of my retirement portfolio. Some people think this is not a good idea, The consensus among financial planners and economists is that the maximum safe spending rate is about 4%. Some say the safe spending rate is even lower.  Most people don’t have a policy, they “wing it.”

At some point, you may not be able to speak for yourself so you have to plan for that reality as well. In your plan, you should 

include documents such as a will, financial power of attorney, advance medical directive and perhaps more, depending on your situation and goals.

You need to determine how the estate will be divided among the objects of your affection and how to meet any other goals you have.  An estate plan should cover more than what happens to your assets after you pass away.

You also need to ask whether it is likely you’ll have to help support either your children or parents or both at some time during retirement.

Of course, you should plan who you want making decisions when you might need help in the later years.