Colin and Evelyn live in a picturesque century-old home in Halifax, Nova Scotia. Colin, age 70, retired from his successful engineering consulting career one year ago. Evelyn, age 66, retired from her teaching position at the same time. Colin doesn't have a pension, but he accumulated significant savings in his Registered Retirement Savings Plan (RRSP) over the years. Evelyn has a healthy pension that will provide guaranteed income for life.
Twelve months into retirement, they're enjoying life. Colin and Evelyn love travelling so they spent four weeks at a villa in northern Italy in the summer, two weeks visiting friends in British Columbia in the fall, and one week cruising to the Caribbean early in the new year.
They are reluctant to curtail their lifestyle - especially since they want to take advantage of the fact that they're both healthy right now - but they are concerned they may be spending too much, too quickly. Colin and Evelyn set up an appointment with their CIBC Financial Advisor to discuss six critical questions:
Do we need to scale back?
Colin and Evelyn had a written plan for their retirement that included a monthly budget. The trouble is that they're spending more than they expected, and the returns on their investments are not making up the difference. They may need to make some trade-offs or lifestyle choices to bring their financial situation back in balance.
How can we protect our savings?
Two of the biggest challenges facing retirees are market volatility and inflation. If you take on too much risk, a steep downturn can reduce savings when you need them the most. Take on too little risk and inflation can erode your purchasing power. Colin and Evelyn need to meet with an advisor regularly to make sure they find the right balance between risk and reward. They also need help managing the conversion of Colin's RRSP into a Registered Retirement Income Fund (RRIF) and setting up an appropriate withdrawal schedule when he turns 71 next year.
How can we plan for the unexpected?
While they are in good health today, Evelyn had a recent scare - a shadow on a mammogram that turned out to be benign. They have built an emergency fund, which can provide them with ready access to cash, and are also considering buying long-term care insurance. They would like to know more about how to monetize their biggest asset - their principal residence - if they require extra cash.
How can we minimize taxes?
Retirees have many opportunities to reduce taxes and maximize government benefits - from pension-income-splitting to well-scheduled withdrawals from RRIFs. Colin and Evelyn have also thought about giving some assets, including their cottage, to their two children now to eliminate future taxable capital gains. What they need is an effective long-term strategy that considers their entire situation.
How can we better manage debt?
Like many retirees, Colin and Evelyn still have some debt - specifically, a secured line of credit that grew to $25,000 over the years and about $2,500 in credit card balances. Right now, they're making sporadic payments on the line of credit and still have a small balance on their credit cards. They want to manage their debt more smartly so they can be debt-free as soon as possible.
Does our estate plan cover all bases?
Colin and Evelyn each have a will and powers of attorney for property and personal care, but these were last updated 10 years ago - long before they retired. They want to revisit their estate plan to ensure that it reflects their current situation. Colin and Evelyn also want to bring their children into the conversation because they know they may need to rely on them to manage some aspects of their finances in the future. They want to be sure everyone understands the reasons for certain bequests in the will, but they're not sure how to bring the topic up.
From the abstract to the concrete
Now that they've been retired for a year, it's a good time for Colin and Evelyn to reassess their retirement goals and consider whether their priorities have changed. As a simple example, if travelling is at the top of their list, they may want to rent out their cottage or downsize their home to raise additional funds.
Once they've talked through various options, their CIBC Financial Advisor recommends the following strategies: