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The Top 5 Financial Planning Challenges In The First 10 Years Of Retirement

You’ve had your retirement party, cleaned out your desk, and are enjoying your long-awaited retirement years. Lots of things end when you retire and enter a new phase of life. But do you know one thing that shouldn’t end? Financial planning. That’s right. You may have thought that years of saving, investing, calculating, and planning are over now that you’ve reached your goal, but that’s just not true. You still have decisions to make, actions to take, and plans to strategize so that you can experience a fulfilling retirement, free of worry and regret.

We’ve found that most retirees face the same 5 financial planning challenges during the first 10 years of retirement. Read on to learn what they are so you can be prepared.

1. Not Creating A Withdrawal Strategy

You’ve saved for years, and now you need that money to live on. How you take it out is just as important as how you put it in. That’s why you need to capitalize on your wealth by determining the most tax-efficient way to withdraw funds in your golden years.

Different financial accounts are taxed at different rates. RRSPs get taxed at the ordinary income tax rate when you withdraw while TFSAs are taxed beforehand, so the money is withdrawn tax-free. Funds in a taxable investment account are taxed at the capital gains tax rate, which is different than your ordinary income tax rate.

As you can see, calculating the best time to pull from each account is enough to give anyone a headache. But the last thing you want is to get hit with a hefty tax bill when you’re trying to stretch your money for decades.

Create a withdrawal strategy with the help of a trusted professional who can make sure you’re withdrawing funds at a sustainable rate and that you’re doing it in a tax-efficient way.

2. Throwing The Budget Away

Many people spend their retirement years doing all the things they never got to do when they were working—starting a passion project, remodeling the house, traveling the world, and more.

It’s easy to underestimate the amount of money you’ll spend during those first few years when you don’t account for all these “extras.” Overspending, even for a short period, can shave years off the longevity of your assets. The solution? Create a spending plan. Calculate your monthly income given your withdrawal strategy and then create a budget, tracking your money along the way so you stick to your goals.

3. Ignoring Inflation

Another major challenge we see new retirees face is the desire to play it safe in the stock market. This does more harm than good as it leads to inflation risk.

Too often, investors focus on the dollar value of their portfolios without considering their purchasing power. As the prices of items increase, today’s dollars will buy less in the future. Since 1960, inflation has increased an average of about 3.7% per year, though it does fluctuate over time. (1) If we assume that prices will continue their long-term trend and rise about 3% per year for the next 30 years, an investor who currently needs $50,000 to cover annual living expenses will need approximately $67,000 in 10 years, $90,000 in 20 years, and about $120,000 in 30 years. And this is just to maintain the same purchasing power.

As tempting as it may be, resist the urge to worry about short-term stock market volatility. With a retirement that could easily last 20 to 30 years, inflation is still a significant threat to your nest egg. Sit down with a trusted professional who can help you strike a balance between protection and growth.

4. Neglecting To Create An Emergency Fund

Could you comfortably pay for an unexpected, major expense in retirement without jeopardizing your financial future? For most of us, the answer is no. Just as you were taught to have an emergency fund in your formative years, it’s even more critical to have one in your retirement years.

Most professionals recommend having at least 12 to 18 months of expenses in an easily accessible savings account. (2) This may sound like a lot, but an emergency fund serves two purposes: it covers unexpected expenses and it provides stability during economic downturns. This means you can optimize your portfolio to beat inflation, as suggested above, while having a safety net to fall back on.

5. Planning On Your Own

It took decades of strategizing to grow and protect your wealth up until this point. Don’t just wing it in retirement and try to manage your money alone. Having a trusted financial advisor by your side can be the difference between having a retirement fund that dries up and having one you can’t outlive. If you want to experience a secure retirement, let us help. Call 403-571-8960 or email to schedule a no-obligation conversation.

About Northfront Financial

Northfront Financial is a boutique full-service financial planning firm serving individuals and families in Calgary, Alberta. As one of Calgary’s leading wealth management teams with highly skilled, certified team members, they help create financial capacity for their clients by deeply understanding their needs, opportunities, and strengths through their unique Northfront Process™. To learn more about Northfront Financial and how they can help you, visit their website and schedule a complimentary appointment.




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