Achieving an Empowered Retirement

Empowered Retirement

When and how we retire has changed substantially over the years, currently, the goal is all about achieving an empowered retirement. But what does that mean exactly?

According to Kamal Basra, co-founder of Sophia Financial Group, it is about having freedom, choices, independence, and more importantly enough income to feel financially secure in your retirement years. “You’ve worked hard all your life, responsibly putting away savings and investing wisely so you can finally retire,” says Kamal. “But the traditional retirement model has changed over the last twenty-five years.” We can no longer retire in the same way that our parents or grandparents did, we have to look at it in an entirely different way.

“The traditional retirement model has changed over the last twenty-five years.”

Kamal discusses the process of achieving an empowered retirement in her Wise Money Moves Webinar aptly named Empowered Retirement. She begins by addressing some of the common retirement myths head-on, as they may negatively affect the planning process.

Myth 1. All retirees are the same; they never want to work again when they arrive at retirement.

“The reality is in today’s day and age, people are continuing to stay engaged,” says Kamal. “They may change jobs, they may work part-time, become a consultant, volunteer, or even start their own business. This concept of never working and sitting on the porch on a rocker no longer applies.”

Myth 2. Retirees are “old people.”

Kamal suggests that, “When we were younger we had this concept of when we retire, that it was the end phase, the last part of our life.” The reality, however, is that more of us are staying active, are healthier, and are move involved.

Myth 3: When you retire, you only need 70% of your income.

“This may or may not be true as it is an individual lifestyle choice,” says Kamal. “This was a standard estimate 20 years ago, but now as people have more time and energy they may want to travel and do more.”

Myth 4: Collect your Canada Pension Plan (CPP) benefits at age 60 to “beat the system.”

Some people think that you need to start collecting CPP when you are younger. “But this isn’t always the case,” says Kamal. “I actually recommend clients to delay collecting CPP as the benefits will actually increase.”

Myth 5: The older you are the more bonds you should own – some suggest basing this on age.

“It is a nice concept,” says Kamal. “But it just isn’t true. With interest rates being so low, bonds are yielding less than 1 or 2%. So if you are 70 years old and you have 70% bonds in your portfolio, most people are not going to be able to have enough income to achieve their goals.”

Myth 6: You only need to plan to age 80.

The reality is, on average, most women are living well into their nineties. Kamal suggests that, “When we do retirement planning we need to go up until 95 or 100 because we don’t want that money to run out.”

Kamal also suggests that women also need to be aware of the following statistics when planning for retirement:

  • On average, women outlive men by about seven years
  • After age 85, 71% of the population is female
  • The average age of widowhood is 56
  • Women still earn on average 70% of what men earn and this leads to lower pension contributions and lower retirement income

As a result, says Kamal, “There are a lot of complexities to retirement and all of these things have to be taken into consideration.” The new paradigm, according to Kamal, is that there are four distinct phases to achieving an empowered retirement. “Depending on the individual,” says Kamal, “each of the phases will have different time periods.”

Phase 1: Productive Engagement – Your work may shift, you may do more consulting, or start working part-time. Income needs stay the same.

Phase 2: Kilimanjaro Phase – Here you are enjoying life, traveling, volunteering, becoming politically active, or taking courses. Income needs increase.

Phase 3: Home is Where the Heart is – Now you might start to slow down and begin to focus on relationships and family, and travel less. Income needs decrease.

Phase 4: Assisted Living – At this point, you may experience health challenges, start living in a community with others, and potentially require support. Income needs increase.

Your retirement plan must be flexible enough to adapt to your changing needs throughout the different phases of retirement. In order to create a secure income that is stable and sustainable, Kamal suggests that you follow Sophia Financial Group’s financial five-step planning model that asks five key questions that can be used at any stage of life.

Step 1: Where am I now?

Here you need to be able to analyze your cash flow (how much are you earning and how much are you spending) and be aware of your net worth (your assets minus what you owe). Both of these variables will give you an idea of where you are now from a financial point of view. In retirement, this often involves coordinating your various income streams (e.g., pension plans: government and work, investments, and any other income). Click here to download free cash flow and net worth spreadsheets.

Step 2: How much do I need in cash reserves?

This is your emergency/slush fund and the amount required will vary from person to person. “This is cash that can easily be accessed within 24 to 48 hours,” according to Kamal. It is not invested in any stocks or mutual funds, it can be anywhere from $5000 to $50,000.

Step 3: What are my goals?

What are your retirement goals? When do you plan to stop working, and how much money will you need to replace your work income? This will vary and be very specific for each person.

Step 4: How do I get there?

In retirement, this is your investment strategy and is again very personal to each person. This involves coordinating your various income streams for sustainability. Key considerations at this point involve creating an income projection until you reach 100 to ensure you won’t outlive your money, maximizing your pension benefits, and being aware of all the various tax implications.

Step 5: How do I stay on track?

This involves reviewing and monitoring your plan every year and going through the five questions each time. “This is not a one-and-done scenario,” according to Kamal, “it has to be monitored annually so that you stay on track as circumstances change.”

To learn more about the detailed strategies involved in achieving an Empowered Retirement, listen to Kamal’s complete Wise Money Talks webinar session available on Sophia Wealth Academy’s YouTube channel. Don’t forget to subscribe if you would like to receive a notification when new videos are posted.