Guest post: Retirement and planning


One dilemma that most people eventually face is the decision of when to retire. There are the obvious financial factors that drive this decision as well as some factors that receive much less attention such as health, lifestyle, and psychological. Given the complexity of this dilemma it is impressive that some clients have an amazing level of clarity and confidence about when and how to retire. The norm, for most though, is an evolutionary decision and despite having help from advisors, financial planning tools, and financial authors the ideal timing doesn’t always feel clear.

There are countless reasons that may lead people to different approaches or decisions so I thought it would be interesting to review the basic framework for retirement planning as well as some recent research.

Financial calculations for retirement can be modelled using a combination of software and good judgement. The basic framework is to look at a person’s income, expenses, assets and liabilities, along with a few assumptions, the most important or which are the rate of inflation, rate of return, and life expectancy (most good planners will tell you conservative assumptions make for a stronger plan).

Professional advisors will have access to software that also incorporates current tax brackets for each province, current and projected rates for government pension programs, corporate account taxation, as well as special features of the tax code like income splitting. More detailed features such as Monte Carlo simulations allow for some insight and comfort to be provided around of the uncertainty of investment returns.

While the tools available have become much more sophisticated, the underlying factors haven’t changed much.

Maximizing savings, saving early, and minimizing debt are all adages of past generations but they remain important today.

Yet for many there is still a lack of clarity. Those who feel uncertain are not alone as a recent Harris poll of 2,000 investors completed on behalf of a leading U.S. online brokerage illuminated.

  • We often hear about retirement being delayed because of the fear of not having saved enough, but 50% of people report retiring earlier than expected (the most common reasons were: health issues, not listed/other, layoff/loss of job).
  • 81% of people are adjusting their plan to address longer lifespans and more than half plan to cut back during retirement in anticipation of a longer lifespan.
  • Those making changes to their plan report career events, family events, and new opportunities in the market, as the leading causes.
  • 54% of people report changing their retirement plan more than 3 times and those with more investable assets tend to do so more frequently.
  • Almost half of those in their 40’s (44%) report having withdrawn from their retirement accounts already and 59% report having saved less than $100,000.
  • Having just come through a Canadian Federal election and with a U.S. presidential election approaching it is interesting to note that, across all age categories, only 9% say new political leaders have influenced their retirement planning.
  • Those with more assets are more likely to focus on retirement accounts and to seek financial advice.
  • And finally, the top three pieces of advice the higher asset group would give to their younger self: Start saving earlier, start investing earlier, and pay off your debt as soon as possible (not any different from the generational advice).

Not all factors affecting retirement are financial in nature. I came across a short podcast by Teresa Amabile, professor at Harvard Business School, that addresses the psychological shifts that take place leading up to, and during, retirement.


Jonathan MacLeod


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