It’s RRSP season. I’m thinking about people who have accepted or are considering accepting an early retirement package.
I’m reminded of someone who accepted an early retirement package because the time was right and he knew money wouldn’t be an issue. For this blog, I will refer to him as “Joe”.
Things I learned from Joe’s experience have played a significant role in shaping my approach to financial planning. As well, it got me to start thinking about what I want life to look like for me if I decide to stop having a job that I’m paid to do. Like many people, my views have evolved.
The Epiphany – Retirement Isn’t Just About the Money
After Joe accepted his company’s early retirement package, he was asked to work for another six months. He met with a human resources counsellor a few weeks before retiring. The counsellor asked what he planned to do his first day off and Joe’s answer was “nothing”.
The counsellor wasn’t surprised by the answer. It’s the most common answer people gave. The counsellor always delved deeper though.
After further discussion, the counsellor learned the following:
- Joe’s plan was to finish his six months of work. After that, he’d take it easy for a few days and then he would think about what to do with the rest of his retirement years.
- He owned his home.
- His work life and social life revolved around his workplace.
- He had no hobbies.
- His wife died a year or two earlier so he had no plans to travel.
- Since he had no plans to pursue a hobby or travel, he could afford to retire early.
- Joe wanted to fully retire and not work again.
- He hadn’t thought about what to do with the money he’d get as part of the early retirement package.
When Joe said he planned “to take a few days to relax and then he would think about what he would do”, the counsellor was concerned Joe would be hit with “retirement shock”. She knew it was easier for people to transition into retirement if they planned to do “something”. She wanted Joe to enjoy retirement and was concerned that retirement shock would make him regret the decision to retire early. Joe didn’t share the counsellor’s concern. However, he did let the counsellor help him come up with a preliminary retirement plan and agreed to start a bucket list of things to try in retirement.
An accountant and a Certified Financial Planner (CFP) can help with the financial planning piece when it comes to taking early retirement. There are many things that come into play. Here is the short list.
- The payout for an early retirement package can be quite substantial, which impacts taxes payable.
- If you own your home, how should the mortgage be handled if there is still a mortgage on the home?
- If you don’t want to work at all when you retire, then you’ll need to have a plan in place to make the money last longer than you had originally planned for if you decide to retire early.
Ultimately, it’s your decision how to manage the money from a payout, but you should at least consider consulting an accountant and financial planner. They know the ins and outs when it comes to tax shelters, government pensions, company pensions and other benefits that may be payable based on your health and other factors at the time you retire.
Budgeting for Your Retirement Years
I have asked many people over the years how they plan to spend their first official day of retirement. Quite often, the response is “nothing”, just like with Joe.
Although you may plan to do nothing on your first day of retirement, you won’t keep doing nothing forever. Joe didn’t keep doing nothing and neither will you. If you will be living on a fixed income, then you will need a budget. Many things will vanish when you retire. Unfortunately, the need to have a budget isn’t one of them. Here is a link to the Money Measures app. You can use it to create a budget for your retirement. http://moneymeasuresinc.com
Are you one of the lucky ones that will have no trouble paying for your retirement lifestyle? If you are, and if you aren’t planning to spend every last penny in retirement, accountants and financial planners can help with estate planning.
Flirting with the idea of Retirement?
I have included some links related to retirement planning. One link is to the Government of Canada’s retirement income calculator. The other links are to information that can help manage the transition into retirement living.
The article on “retirement dating” is an interesting read. There is a suggestion to try living with your retirement budget ahead of time since most people have to live on less money in retirement. The Money Measures app can be used to create a retirement budget that you can take for a test drive.http://moneymeasuresinc.com
RRSP Contribution Deadline
The RRSP contribution deadline is March 1, 2022.