More People Consider Retirement in Pandemic Challenge

Will COVID-19 push you into retirement? It’s a concept for the times as more teachers, health care workers, business owners and others face their exhaustion from the changes forced upon them by the devastating COVID-19 pandemic.  Others have faced job termination before choosing their own retirement date. Fortunately, a new edition of Master Your Retirement by best-selling author Doug Nelson, CFP, CLU, MFA™, RWM™, CIM can help.  We asked Doug why he wrote the book and how it will help with these important deliberations.

Why did you write this book, Doug?

Retirement is one of the most complex transitions in one’s life.  To go from a reasonably secure work environment to then relying 100% on non-employment income, is a big step and leap of faith.  You go from one source of income to as many as 10 or more sources of income.  Different sources of income are taxed in different ways. The timing of when to draw this income is also complex. 

I wrote this book because of this complexity and to provide a thoughtful, well-designed process to work through the many decisions leading into retirement, including in the early years of retirement, the active years of retirement, and the years when care is needed, and then to prepare for the years when you may be living alone once again.

What is the most common question people have for you when they approach their retirement?

There are many common questions that people have when they approach retirement:  do I have enough?  What is a reasonable retirement date?  Will I run out of money?  How secure will my income be in retirement?  Which pension option should I choose?  When should I start to draw income from each source?  When should I start to draw my Canada Pension Plan benefit?

Now double these questions when you are planning for two retirements (one for each spouse).

Today the really big question is:  to what degree has the volatility in the markets over this past year impacted my current plan?  Am I still on track?  Will I need to go back to work?

Given the circumstances, is there a positive that people can bring to the realization that it’s time to take your leave from work?

Perhaps the positive benefit is that today’s circumstances give you the time and energy to take a fresh look at all of your retirement options so that you can see exactly where you stand today.

There is always a positive if this is the right thing for you to do at this time.  Many work environments are changing considerably, some for the better, especially if you can now work from home.  If the work environment is not changing for the better, then perhaps it is time to see how close you are to considering full time retirement.  In many situations we will do an extra “employment income top-up calculation” where this calculation determines the amount of extra employment income you may need to earn, above and beyond your other sources of retirement income.  In many cases this may not be a lot of additional money.  Working part time in your current role may even be an option.

This may not be an ideal time for many who have had retirement forced upon them, perhaps because of job termination.  What advice do you have for them?

Whenever an “unplanned” retirement start date occurs, the first key is to understand your expenses.  What are your expenses today, what expenses can you modify or reduce and how are these expenses aligning with your personal values? 

The next step is to understand what income sources you may have available today and how this income may be taxed.  Does the income cover your expenses?  If not, what is the shortfall?

Now you can step back and consider:  how much employment income do I need to generate to meet any shortfall?  If I can’t find employment income, where will this additional income come from?  If it comes from my investments, will this draw down these investment values prematurely and leave me with less total income in the future?

These are all “scenarios”.  Regardless of whether you were terminated prematurely, or if you are retiring today on your own motivation, these are the same steps to follow.  This process is very powerful because it will give you confidence that you are spending money in all of the right areas.  It will give you confidence that you are managing your taxes well and it will give you confidence in knowing how much you need to work to make up any shortfall.  This confidence gives you clarity, purpose and most often, some form of additional peace of mind.

Now go live out your plan!

How is retirement complicated for business owners and what is the best course to take in jumping over their particular hurdles?

The life of a business owner is complex because they need to find the right balance between the needs of the business and the needs of the family. 

Business owners need to assess the pros and cons of building their retirement portfolio inside the corporation or held personally in an RRSP or TFSA.  In most occasions it is a combination of both strategies, but the complexity increases when striving to consider how much wealth to build in each location? 

When you retire you have the same challenge:  how much income should you draw from each source?  As a business owner you will typically have more sources of potential income than non-business owners.  It is also more complex when the business owner must also consider how to transition the business to a new group of owners and leaders.  This can also greatly influence the amount of money that will come from the business assets.

The best course to take to overcome this complexity is model two different extreme scenarios. 

Scenario 1:  what if you could not sell the business and you had to live only on your current savings?  Do you have enough to live on?  This calculation will help illustrate the amount of additional income you need to have from the business asset.  This could come from a sale, a redemption of shares, rental income, dividend income or some form of employment income. 

Scenario 2, the other extreme, is to consider how much income would come from all sources of income in the event that you did sell the business today.  How much income would you have and to what extent would this total income meet your income needs?   Now you see the impact of two different extreme scenarios.  This understanding will help to determine where you may have too much or too little income, and how this income will be taxed.  This will help you then determine where to draw income from first, which sources of income to defer into the future and how you can effectively manage your tax picture along the way.

This is what we call an Income First orientation.  Modelling the income scenario first is extremely important because tax is life’s single greatest expense.  Once you determine how best to model the income, you can now determine what you need to do to draw this income from the different available sources of income.

Your readers have loved this book.  Here’s an example of a reader’s comment: “My brother and I both have copies of "Master Your Retirement". We both think it is one of the best retirement books available in Canada – and wanted to thank you very much for writing it!! ”  Jeff G., ON. How does that make you feel?

I am extremely proud of the book and how the strategies used have stood the test of time.  The strategies you see in the book are those we use with our clients each and every day.  The strategies work very well. 

We are always flattered when people come to see us with a copy of the book, when that book is marked up from beginning to end.  It forms the foundation for some great conversations and I am so pleased that it has touched so many lives in such a positive way.  That’s why we do what we do each and every day.  We love to see just how positive the impact can be when people are empowered with positive skills, benchmarks, rules and strategies to assist with their retirement decision making.

After all, why just live your life, when you can Master it! . . .even in a global pandemic.

Order your copy of Doug Nelson’s book, Master Your Retirement online today!