Hello everyone and welcome to the Retiring Canada Podcast. In today’s episode, we’re going to discuss a strategy called Retirement Income Guardrails.
Specifically, we will cover:
- How to keep your retirement income on track and avoid financial pitfalls.
- Balancing the risk of running out of money with the risk of leaving behind too much.
- Incorporating “raises” and “pay cuts” into your retirement planning.
- Our three-step process to implement this strategy.
- Action items for you to consider.
If you are within ten years of retirement or have recently retired, you’ll want to pay close attention to today’s episode.
Introduction
When it comes to retirement, running out of money is not an option. Similarly, leaving behind a substantial sum isn’t ideal either. We need a strategy that balances these two extremes. However, there are two significant uncertainties:
1. Longevity: We don’t know how long you will live, so we plan for a 30-40 year retirement period.
2. Market Performance: The markets can fluctuate, making it hard to predict their behavior over your retirement.
To navigate these uncertainties, we’ve devised a strategy called “guardrails.”
The Guardrail Strategy
Consider your preferences: Would you prefer more experiences during retirement or less? Do you want to leave a large inheritance, or enjoy your time more fully?
With the retirement income guardrail strategy, you can balance a fulfilling retirement with financial security.
How It Works
Implementing the guardrail strategy is more hands-on for both the advisor and the client. It involves:
- Continuous monitoring of your retirement income.
- Making necessary adjustments based on market performance.
This strategy is suitable for those who want to maximize their retirement dollars without the fear of running out of money or leaving too much behind.
What It’s Not
The guardrail strategy is not a replacement for a comprehensive financial plan. As Certified Financial Planners, we distill our strategies into easy-to-understand summaries. We adhere to a code of ethics including loyalty, integrity, objectivity, competence, fairness, confidentiality, diligence, and professionalism. For more details on our Code of Ethics, see the link in the description.
Three-Step Process
1. Preparation:
- Understand your potential retirement incomes, including CPP, OAS, and pensions.
- Assess your retirement expenses and identify any income gaps.
- Review your investment portfolio and its tax implications.
- Build a “war chest” of cash, high-interest savings, GICs, alternative assets, bonds, and term deposits to protect against market volatility.
2. Consistency:
- Implement, review, and monitor the strategy regularly.
- Adjust income based on portfolio performance within predetermined guardrails.
For example, with a $1,000,000 nest egg, you might start with $4,500 monthly income. This continues as long as the nest egg remains between $840,000 and $1,250,000. If it drops below $840,000, adjust income accordingly until it recovers.
3. Discipline:
- Stick to the plan, making necessary adjustments when hitting guardrails.
- Our role is to monitor and communicate these adjustments to ensure you get the most out of your retirement.
Conclusion
We believe in simplifying our clients’ lives. Traditional methods like Monte Carlo analysis and probability of success can be confusing. Our guardrail approach is designed to be straightforward and actionable.
Action Items
1. If you’re concerned about running out of money or leaving too much behind, consider this strategy.
2. Review your investment portfolio. If you’re holding only 1-2 balanced funds, consider diversifying.
3. Keep it simple. Simplicity aids communication, understanding, and execution.
That’s it for today’s episode. For links and resources, check the show notes or visit retiringcanada.ca. If you enjoyed the show, please subscribe and leave us a review. Submit any questions via the link in the show notes, and I’ll do my best to answer them in a future episode.
When it comes to your retirement, don’t take chances.
Make a plan so you can retire with confidence.
CFP Standards of Professional Responsibility
Retirement Income Guardrails Sample
All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.