What is enough? or How much $$ do I need to retire?

These two versions of the same question are the most common questions that any financial planner is asked.

They are difficult questions to answer because it depends… on expectations, lifestyle, mortality, risk tolerance and need.

Let’s break it down a little more and try to develop some clarity on the concept of:

 How much money is enough to retire?

What are your expectations?

Here your planner should ask such questions as:

What does retirement look like? Will you stop working entirely, will you travel (the world or just your city / country)? Will you rest?

If you will continue to work, is it in another field at full time or the same field part time?

Will you volunteer, or do you expect to spend time on cherished hobbies?

What are you looking forward to in retirement?

Your lifestyle

Will you spend more (on travel, health, hobbies) or less (a more quiet frugal lifestyle) in your retirement?

Gifts, charity, sports, and activities: how do they add up in this retirement activity plan?

Are you an extrovert or an introvert?

What has work meant to you over your career: the most important factor in your life, or the least important factor?

With successful retirements it is well known that you must find a substitute for a “need”. For example, an extrovert needs people around them. The workplace filled this important need. When an extrovert retires they need people activities or they will resent the very retirement they have been looking forward to for over 40+ years!

An introvert needs different things, for example, quiet enjoyment and select individuals.

Mortality. How long do you expect to live?

Your planner needs an idea of your mortality to build assumptions that are a fit for “YOU”. If your family typically lives into their 100s it is not practical or reasonable to create a plan where your money lasts to age 90. For instance, as of the 2011 census, the average woman in Saskatchewan lives to age 79.7 and the average man to age 78.7.

This is a difficult topic to talk about sometimes, but:

Do you have health issues now (and are you covered by health insurance over and above Sask Health)?

Are there diseases in your family that keep cropping up, such as cancer, heart disease, diabetes or others?

Are your parents or grandparents living?

Risk tolerance & your money personality

People resent the typical financial planner questionnaire about “risk” since most of us just want the highest return with the least risk possible. The questionnaire measures types of risk. (Market risk, inflation risk, concentration risk, currency risk, interest rate risk, liquidity risk, credit risk, longevity risk and foreign currency risk are examples that must be considered). It is critical for your planner to understand the risks affecting you and to get to know your unique approach to risk.

We planners need to know how you will react in a volatile market and how important safety and security are for you. Money personalities also give clues as to risk tolerance through measuring practiced beliefs and lifestyle choices. See our blog posts on the Money Personalities: Security Seeker, FlyerRisk Taker, Spender, Saver, and the Coaster.

The truth is that we learn money from our parents and our parent’s parents – our way of doing money is instilled in us at an early age.

Also risk changes over time. As we age and get closer to retirement our earning capacity often reduces and we have lower tolerance to absorb fluctuations in our investment balances the same way we did when we were younger. In other words, our capacity to absorb risk decreases. In my 30s and 40s I was a risk maven – now that I am older I take a great deal more care to reduce volatility and balance fluctuations in my individual portfolio of investments.

An important factor we consider when we work with clients is how much risk the client needs to take to meet their goals and objectives. I once coached a retiree who was indicating a need to obtain a 10% plus rate of return in the portfolio. When we took a look at all of the needs, including the funds for children after death, a 4% rate of return was sufficient to meet those needs.

Need

In mediation terms these are your interests (the factors that make you a unique individual). For example:

What are your hopes, dreams and passions? By remembering earlier times we can rediscover those dreams long forgotten – ideas of what you really wanted to do in your life  – often called a “bucket list”. Rediscovering these goals is a unique, individual and very important part of creating “enough” to retire on.

Ask yourself: what is really important to me, and to us?

What are the non-negotiables in your retirement plan?

What is enough?

In summary, What is enough? is a complex question.

Do not accept a simple answer! Come and talk to us at Next Step – we will not try to sell you any financial products.

We will listen.

We will ask the “right” questions which allow us to act in your best interest.

Call us at 306-242-5660.

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