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Here are six things I think anyone who is three to five years away from retirement must do.  These are based on my experience in working with my clients, and do not include the traditional replies including up-dating your financial plan and your wills and power of attorney. 

1.  Renegotiate your mortgage (if you have one) and get the biggest unsecured line of credit the banks will give you.
It is common knowledge that over 50% of retirees have mortgages or credit lines secured against their homes.  That’s just the way it is – we wish it wasn’t but wishing doesn’t make it go away.

I recommend all retires increase their access to credit before they retire.  Don’t mis-understand me.  I don’t mean for you to actually use the facilities and get into debt if you don’t have any or further into debt if you have some.  I mean that you should have the option to borrow if the need arises.  That’s what a credit line is – it is an option to borrow.  If you did not use the credit line, there would be nothing to pay back.  



Consider this scenario: the markets are bad, and I mean really bad, if you took money from your investments just now like you do every month you will have to suffer a huge loss.  Remember that once you sell a share or a unit of a mutual fund, it’s gone forever and the opportunity for it to come back with the market is gone forever. It is a much better option in most situations to take money from your credit line and wait for the right time to sell your investments. In addition, you generally have to wait at least five days to a week in order to get money from your investments, whereas a credit line can be accessed at the ATM.

Also, if you ever fall on bad times, you can use the equity in your home to get you by.  I know there are times when selling your house is really not an option, either because you would not get enough for it or because you just don’t feel that you want to live anywhere else.  In such cases it also makes sense to use the credit line and continue to live in your home and leave a smaller estate behind for your beneficiaries.

2.  Redo your investment risk profile and create three buckets of investments

I have noticed that most advisors never revisit the risk question after they set-up the account the first time.  I think this is negligent behavior.  I believe that as investors our appetite for risk continues to change over time. Some people become more comfortable with investing as they learn more about the markets and therefore start out being very cautious and unadventurous, but end up with the capacity to understand risk and accept investments that are volatile and even dangerous.  Predominantly however, I find that investors become more aware of the fact that they have very few years of employment income ahead of them and therefore ensuring that their money is protected becomes the most important factor for them.  If you were one or the other type of investor and you were now contemplating retirement don’t you think that your investments should reflect your objectives for future years?

Do make sure that you take some sort of a test or survey to determine what your risk profile is and to check whether your existing investments are in line with this risk profile.

Also, it makes sense to divide available resources into three big chunks or buckets.  Depending upon how much you have at your disposal and what this money has to do for you in terms of providing an income, I think it is a viable target to have two to three years of expenses in cash or near cash assets such as GICs.

I also feel that at least 20% of the remaining investible assets should be invested in aggressive or growth oriented products. The purpose of this bucket is to replenish the investments that you will consume as income over the years. 

The remaining 80% has to be invested in product that is relatively less volatile and earns a regular income that minimizes the amount that you will end up consuming from your original monies invested or your principal capital.

In fact, it makes a lot of sense to work backwards from these three buckets to determine how much to save.  The ideal time to start working with a financial advisor would be in your early 40s.  You must aim for something or you’ll end up living life by default.

3. Set-up a home based business if you don’t already have one

Most retirees go through what I call a honeymoon period.  This is the first two to three years of retired life when the novelty of not having a routine feels wonderful.  It’s like being on a holiday and it is all new and lots of fun.  Into the third year a couple of things can happen:

1.     You’re three years older and running all over the world, adjusting to time zones and going through airports is starting to seem like a lot of work.

2.     You were having so much fun you used up more of your investments than you intended to and now you realize that you have to cut back or replenish in some other way.

3.     You just caught up with doing your taxes and found out that you not only have a whopping tax bill but that you got clawed back on your OAS pension because you’re making too much retirement income.

4.     You’re bored, you realize that working for money is like going hunting as hobby, it’s exciting you like the prize, you want to have something to do that makes you feel your value in monetary terms but you don’t really want a job.

When any of the above or a combination of them is encountered, I get people calling me asking for advice on what next?

This is why I have started counseling pre-retirees to take some time and start a small home based business; the multi-level marketing or network marketing companies are an excellent place to start because your shop is on the internet and you only have to do as much direct sales as you feel like doing.  Having this sort of an activity does many things:

1.     You make new friends and learn new skills.

2.     You may even earn some decent money.

3.     You get to claim all the write-offs of being self-employed and this will reduce the taxes that you pay and the clawback.

4.     You have fun, you have no set hours of work, you can work from anywhere in the world at any time of day

Explore and talk to people, find something that would be of interest to you.  Even if you don’t start prior to retirement, I definitely do recommend exploring this option seriously.

4.     Please don’t invest in balanced funds

I don’t like balanced funds very much and the recent recession just helped me prove my point.  Traditionally, bond markets and stock markets move in opposite direction from each other.  So when stocks are up, bonds are down and so forth.  A balanced fund is a fund that has equal parts of both bonds and stocks.  So when stocks go up, bond drag the performance of the fund down, and when bonds go up… you get my drift.  So now the stock side of your portfolio has to work harder in order to counter act the drag of the bond side of the portfolio and then make a return for you. The end result, your investments have flat lined and probably made less than the average GIC investor.

The other problem that is more specific for retirees is the fact that when you own a balanced fund you do not have sufficient control to be able to say, ok, in today’s market I should probably hang on to my stocks, so Mr. Fund Manager could you please give me an income only from the bond side of my portfolio.  No, that option would be laughed at: when you sell a unit of a mutual fund that unit represents both the bond and the stock portfolio of the mutual fund.  Much rather own clean bond and clean equity mutual funds so that I can decide which one to redeem for income and when.  So if you do own any balanced funds or moderate funds, take another look at them.

5.     Experiment living on your retirement income before you retire

When people sit down with me to conduct a retirement planning exercise and we set-up a budget for retirement based on the lifestyle they want to enjoy and the amount of disposable income they will have access to in retirement, we are basically shooting arrows in the dark – it’s all conjecture.  In almost all cases, retirement income is lower than employment income, and people try to figure out where the cut backs will come from. The reality of cut backs can be very different.  I suggest, try living the retirement lifestyle with the retirement price tag an year prior to the planned date. This will give you a much better idea as to whether you have what it takes and you like the results that you will end up with.  It allows you to change your mind, because you can decide to continue working a year or two longer knowing that this will give you the opportunity to put more money away, and you know with greater certainty what you are willing to give up and what you cannot do without.

6.       Delay RIFing/ LIFing for as long as possible

When registered investments such as RRSPs and LIRAs are converted into an account that gives the owner a regular annual or monthly income such as a RIF or a LIF, that income stream can never be stopped.  So once you make the conversion, you cannot say, I don’t need a RIF payment , please don’t sell my investments to send me money for the next three months.  It cannot be done.  So in a way you lose control.  What if the markets are down and it is the absolute wrong time for you to sell?  Well, too bad, you cannot stop a RIF payment or a LIF payment.  I believe it makes much more sense to have standing instructions on file with your advisor to do the redemption and send you the money from the RRSP or LIRA without converting these accounts to the corresponding annuity.  You can potentially delay till age 71 under present legislation.

I hope that you found these tips useful.  If you would like a private consultation based on your own situation please leave me a comment and I will send you my hourly rates for consulting work.




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