Pam Lavers
Co-Founder, The Tower Group

From the Retirement savings years to the Retirement spending years

For most of our working life, we have been conditioned from the start in thinking about retirement one day in the future and pick that date. Every January and February we are bombarded by the financial institutions and their advertising to promote us saving for our retirement through RRSPS. 

These days, money and retirement is one of the most pressing concerns for Canadians from coast to coast. So after all the years of saving and investing there comes a day when we move away from the saving of our money to the spending of our wealth. These are two completely different animals and it’s important that you understand the differences of both. In many cases, most investors aren’t even aware of these two wealth differences, but potentially there could be additional risk in your retirement if you don’t understand these two distinct scenarios.

In the savings years, you put money into a portfolio, diversify based on your risk tolerance, make changes in your investments as need be and wait for the law of compound interest to take over. Mistakes in this structure can be overcome by waiting out the market corrections, by adding additional money to the plan or simply just making investment changes. Mistakes that get made are frustrating but you the investor are not pulling money out for income therefore we can say …let things sit and one day the money will recover.

In the spending years, you don’t have the one thing you have in your savings years and that’s time. There is much less time for portfolios to correct in market crashes, you can’t just throw more money into the portfolio to make up for the mistakes, because at this stage you are withdrawing money and that money is needed to fund your retirement. The older you get the lower your risk should be with your money. So it’s critical that your risk levels or asset allocation be review every few years in your spending years, as well as matching up the allocation to big spends in your life.  You also have to factor in taxes and government plans.  If you haven’t mastered the lifestyles expenses and big spends in the savings time frame, it gets more difficult to manage in the spending time frame.

Getting good competent financial advice too is never more important than in the spending years. As we always say, anyone can manage money on the way up, but only a professional should manage money and taxes on the way out. One thing we have noticed too with our clients is that, the older you get, the less investors care to completely stay current and relevant in the portfolio and plans. Retirees have more important issues on their life bucket list than watching stock market reports. So maybe it’s time if you’re in this stage of life to take your hands off the wheel and delegate to a professional.

Bottom Line….the financial plan for the spending years is different that the financial plan for the savings years. Not identifying this can lead to tragic consequences both financially and mentally.