Part 3:  The Art & Science of Retirement Planning

Doug Nelson, author of Master Your Retirement, looks deeper into the questions you should ask yourself when considering each of the seven retirement plan components.

1. Identify your basic income needs: How much money do you need to have a roof over your head and food on your table? Understanding this is important as it’s your bottom line security. For most people it’s $2000 to $2500 per month, after-tax. This figure includes the grocery bill, the property taxes, home insurance, utilities, gas in the car, car insurance and some spending money.
    
2. Identify your lifestyle wants: How much money do you need to address your lifestyle choices: entertainment, travel, memberships, charitable contributions, etc.? Knowing this figure will give you an idea as to where you most wish to spend your time and money.
    
3. Identify the costs of owning vacation properties: What is the cost of owning your cottage or vacation property? What are the taxes and utilities? What are the travel costs? Are there additional costs for insurance and gas for the toys at the cottage (the boat(s), the trikes, the quad, etc.)? It is critical to understand the costs of ownership for different properties as you can assess if this is how you would like to spend your retirement income?
    
4. Identify the profit and loss picture on rental properties: Do you know if your rental properties are profitable? In other words, are the rental properties more of a drag on your retirement income than a benefit? 
    
5. Identify the guaranteed sources of income: Ideally you want to make sure you have enough income from guaranteed sources to cover your basic income needs.
    
6. Identify the variable sources of income: You’ll want to see how much of your income will fluctuate with the market over time. This is an aspect of risk, which is not always welcome in retirement.
    
7. Identify the ideal timing for each source of income: It may be best to draw from certain sources of income first while allowing other sources of income to increase in value over time.

Now step back and see what we have done. We have broken down your retirement expenses and income into meaningful components. These are also the laws of retirement planning. These calculations must be done for every retiree, and for each year of retirement. 

When you understand these figures, you can begin to link them to the “art” of your retirement plan.

LAST TIME: The Art & Science of Retirement Planning

Pick up your copy of Master Your Retirement from the Knowledge Bureau Bookstore.

Doug is a 21-year veteran of the financial services industry in Canada and is a senior financial planner and licensed portfolio manager. He has authored several advanced financial planning courses with Knowledge Bureau.