Overcoming 3 Retirement Planning Obstacles
Planning for retirement can feel overwhelming for many Canadians. The decisions we make can have a big impact on our future incomes. Even those who've had successful careers can feel uncertain about how to prepare for this next phase. While you may know about the benefits of creating a plan, it can still be hard to get started.
The first hurdle Canadians face is often a lack of knowledge. Few of us ever receive any formal education on how to plan for income after retiring. There is a lot of information online, but it can be difficult to understand or apply to our own situation. A lot of the advice is also conflicting, which reduces our confidence in making the right choice. Sometimes, our own confidence in our financial knowledge can make it hard to notice potential blind spots.
Another challenge is addressing the emotional aspect of retirement planning. Concerns about money and the uncertainty of the future can lead to anxiety and procrastination. This can lead to missed financial planning opportunities. We know we should take action to improve our financial security, but it can be difficult to get started.
There's also the issue of time. Balancing work, family, and other responsibilities can leave little time for financial planning. This can be especially difficult for those at the peak of their career.
In this article, we'll take a closer look at these three challenges. We'll also consider potential solutions for them. Fortunately, each of these hurdles can be overcome. By taking proactive steps now, you can set a strong foundation for your financial future.
Obstacle #1 - Knowledge Gaps
Many of my clients express a lack of confidence in their financial knowledge. The demands of life and a busy career leave little time for learning about personal finance. They've been able to save for retirement, but recognize that there is a lot that they don't know.
Making matters worse, there is a lot of conflicting advice in the financial media. With so many differing opinions and conflicting forecasts, it's difficult to know who to trust.
Friends and family sometimes give us financial advice, but it may not be suitable for our situation. What works for one family may not match the goals and preferences of another. Risk tolerance varies and often reflects our past experiences with money. Relying on well-intentioned advice can lead to taking on more risk than we'd like.
Even those who feel confident in their financial knowledge can benefit from reviewing the basics. Recognizing what we don't know and being attentive to potential blind spots could save us from costly mistakes.
Some basic questions to think about when planning for retirement include:
How much money will you need?
How long will you live after you retire?
How will you deal with prices going up over time?
How can you use your savings to get money for your everyday needs?
How much will delaying retirement an extra year help?
With so many considerations, knowing where to start can be a big challenge.
Solutions
While there's plenty of information online, a good book is one of the best investments you can make for your retirement. Here are three that I recommend. I've kept the list as short as possible while still covering the most important topics. Together, they cover the essentials of financial planning for retirement:
'Retirement Income for Life' by Frederick Vettese
If you're only going to read one financial planning book, this should be it. Vettese covers the most important aspects of how to create retirement income that lasts as long as you do. The book also has a useful "Takeaways" section at the end of each chapter, making it easy to review the key points.
'Reboot Your Portfolio' by Dan Bortolotti
Investing doesn't have to be complex. This book by a professional portfolio manager will equip you with the tools you need to take control of your investments. Bortolotti has created a step-by-step guide to help you create a low-cost investment portfolio. By using exchange-traded funds (ETFs), you may be able to save thousands of dollars in fees each year.
While investing on your own isn't for everyone, it's valuable to understand the basics. Knowing the fundamentals will help you make a smart choice when looking for an investment advisor. The larger your investment portfolio, the more important this decision becomes.
'The Psychology of Money' by Morgan Housel
Personal finance books often focus on numbers alone, but the psychological aspect of money is equally important. In the book, Housel presents short stories which explore the relationship between real people and their money. Lessons include insights as to why we spend, the value of our time, and the role of luck.
Obstacle #2 - Emotional Barriers
Anxiety, guilt, and shame are common and can lead to avoidance and procrastination. Some feel bad about having debt. Some feel embarrassed about past investment choices. Some simply believe that they should have saved more.
Even financially confident individuals can feel paralyzed from wanting to make the "best" decision. The uncertainty of the future can breed fear of making a mistake, given the overwhelming number of choices. Fortunately, you are not alone in facing these challenges.
The good news is that you can start to address these feelings by taking action.
Solutions
Recognize Your Emotions
Try writing down the negative emotions that you feel when thinking about money. Identifying these feelings can help you understand why you get stuck. Then you can start building the courage to get started. While there may be some initial discomfort, the negative emotions don't have to stop you.
Create Your Vision of Retirement
Before getting into details of financial planning, create a vision of what you would like your retirement to look like. Many people retire to get away from work, but it's even more important to find out what you want to retire to.
What would you like to do more of?
What would you like to try for the first time?
Who do you want to spend more time with?
Retirement is a wonderful opportunity for a fresh start. Imagining the activities that you'll have more time for can be a powerful motivator to start planning.
Set SMART Retirement Goals
Creating good goals is crucial in successful retirement planning. Setting SMART goals gives you the best chance of fulfilling your retirement vision. Here's how:
Specific: Clearly outline what you want to achieve. Rather than a vague goal like "save for retirement," specify the amount you would like to save each pay period.
Measurable: Attach specific metrics to your goals. This allows you to track progress and provides a clear indicator of when you've achieved your target.
Achievable: Ensure that your goals are realistic. Setting goals that are too ambitious can lead to frustration if they are not met. Build momentum with small, early successes.
Relevant: Align your goals with your retirement plan. Each goal should contribute to the bigger picture of what you want your retirement to look like. Looking for the next hot investment won't help if you don't even know how much you need to retire.
Time-bound: Set a definite timeframe for accomplishing your goals. This adds urgency and helps prevent procrastination.
To help you set better retirement planning goals, I've created a 52-item retirement planning checklist. In it, you'll find the most important steps that every Canadian should include in their plan.
Obstacle #3 - Time Constraints
Balancing work, family, and other responsibilities can leave little time for financial planning. In addition to increased work demands, the time before retirement is often when Canadians start to take on more responsibility for aging parents. With only so many hours in a day, it's hard to set aside time to calculate your retirement income.
Solutions
The previous solutions can make planning easier, but it is still a daunting task. If you don't have the time or desire to make your own financial plan for retirement, seeking a professional will be invaluable.
How Much Help Do You Need?
The first step is to decide how much help you would like. Not everyone needs to have an ongoing relationship with a financial advisor.
If you're confident in your finances, you may only need a retirement assessment to check for blind spots and make sure you're on track. This service will also help you understand how your retirement will be affected by inflation and make better decisions for things like pension buybacks. Once it's created, it can be updated every few years.
For those who would like more help, an ongoing relationship with an advisor can be a wonderful investment. Over time, the advisor can better understand you and your goals. This type of relationship is especially helpful for guidance during stormy periods in the stock market. An advisor that you trust can help you avoid hasty decisions and keep your retirement plan on track.
Hire a Qualified Financial Planner
When seeking professional help, it's important to work with a qualified financial planner. Look for someone who holds recognized certifications like the CFP® or RFP® and has experience in retirement planning.
During your initial meetings with potential planners, ask about their approach to retirement planning. Make sure they understand your specific needs and goals. They should be able to explain their recommendations in clear and understandable terms.
It's also important to discuss fees and compensation structures upfront. Ensure that the planner's fees align with the services they provide and that there are no hidden costs.
Conclusion
Overcoming the obstacles of knowledge gaps, emotional barriers, and time constraints in retirement planning is achievable with the right strategies and support. By addressing these challenges head-on, you can set a strong foundation for your financial future.
Remember, it's never too early or too late to start planning for retirement. Taking proactive steps now can make a significant difference in your financial security down the road.
