The grasshopper watches the ant working diligently all summer long, making a home and gathering food for the winter. Thinking the ant a fool, the grasshopper spends his summer days playing in the sun and consuming whatever food comes his way. When winter arrives, the ant is cozy and well-stocked in the shelter she has constructed while the ill-prepared grasshopper staves in the cold. (Aesop's fable of the Ant and the Grasshopper)
The words of my mother still play like a broken record in my mind, "Save For A Rainy Day". We can't predict the future and we don't know what it may hold, but we can plan and prepare for it. Here are a few things to consider:
1. Not starting early in life with a financial plan - It’s true: you will spend more time planning your 2-week summer vacation than your financial future. David Chilton’s book, "The Wealthy Barber” is a great book to get you started on the right path. Insurance, investments, wills, TFSAs, and RRSPs are simply the vehicles you can use to get you where you want to be. If you have an idea (dream) of where you'd like to be at age 60 or 65, then put an action plan in place now that will help you get there. Today is the best day to start planning for your retirement. Avoid making financial decisions until you have a proper comprehensive plan in place. Some of the choices that you will have to make in retirement are irreversible.
Have you considered the impact on your cash flow if you delayed CPP and OAS to age 70?
What impact will RRIF minimums have on your government benefits?
2. Unplanned spending - Do you really know how much you spend each month? Or, Where you are spending it? If you’re not paying your credit card balance in full at the end of each month chances are you have unplanned spending and need a better budget. According to creditcards.com, 52% of Canadian households carry a credit card balance from month to month. Failure to plan is a plan - it's a plan to fail! Creating a budget at any age is helpful to keep you on track and keep you from being anxious about your money.
Does it make sense to tie up so much of your money in your home? Should you tap into that equity?
Would it be better to downsize or maybe even rent?
3. Misunderstanding and mismanaging risks - Imagine the financial consequences of your house burning flat to the ground and not having any insurance to replace it. Not only would you have to continue paying the mortgage, but you would also have to come up with the money to rebuild. You just wouldn’t do this. There are risks associated with living and you need to understand and manage them well or live with the consequences. There's stock market risk, inflation, premature death of a spouse, longevity, long-term care, disability, and travelling outside of Canada.
Maybe you and your spouse have adequate income now, but what will that look like if one of you passes away earlier than expected? You will see a total loss of OAS and a reduction in CPP benefits. How much less income will the surviving spouse have? And, will it be enough?
Are your investments doing better than the expected inflation rate, which is currently in the 6% range? Are you a GIC refugee? Are you overweight in bonds? If so, why?
There's no such thing as a risk-free life. The key is to acknowledge the risks and plan for ways to mitigate them. Retirees often get sucked into buying GICs based on the notion that they are safe, yet not getting enough return on their investments will cause them the unpleasant risk of running out of money later in life. This is an example of the need to properly analyze risk and plan properly. One way to create more certainty and cash flow are by avoiding costly mistakes. But if you do not know what to do then get some help with your planning.
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Retirement Income, Investment, & Tax Planners,
Willis J Langford BA, MA, CFP
Nancy R Langford CRS
Life Is Short. Retire. Be Happy!
