Retirement needs a map, just as travelling needs a GPS: The Art of Retirement
September 21, 2023
For any of us, at any age, who are thinking about retirement, The Art of Retirement by Anthony Gordon is a must-have retirement reference book.
The book begins by helping us reframe our relationship with our finances. Perhaps, the book suggests, quoting noted economist Moshe Milevsky, we need to think of ourselves as a corporation — “You Inc.”
In that role, your goal would be “to maximize your company’s value while minimizing the risks faced by your corporation… to take the long-term view when making financial decisions.”
After a discussion of the “Rule of 72,” the idea that “72 divided by the interest rate approximately determines how long it takes for your money to double,” Gordon notes that the earlier we start saving, the best. “You need to start saving and investing as soon as you get the chance,” he writes. “If you do not, you will not get the full benefit of compound interest and the Rule of 72, so missing a year has a significant impact in the long run.” Think of your early investment “as a small snowball that gradually grows,” so long as you get the ball rolling.
He quotes the great Albert Einstein as once saying “he who understands interest, earns it; he who doesn’t, pays it.”
Gordon advises that as you save for retirement, you want to “keep track of your debt. If you ignore debt, you will not be on track for your retirement even if you have a lot of investments.” Compound interest works against you when it’s being applied to debt, he warns.
Writing about retirement income planning, he advises us all to find out what your “guaranteed income streams” are going to be — this can be Canada Pension Plan (CPP), Old Age Security (OAS), the Guaranteed Income Supplement,” or income from an annuity.
Then you need to think about how much you will need to withdraw from other personal savings — registered retirement savings plans (RRSPs) or Tax Free Savings Accounts (TFSAs). Next, look into ways to minimize taxes — then, you will have a picture of your future retirement income.
If you are running your own investments, be aware that “as humans, our erratic emotions and actions are rooted in psychological forces that drive most of the poor results that investors experience in the market,” Gordon writes. Quoting legendary investor Warren Buffett, he writes that “to invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight or inside information. What is needed is a sound intellectual framework for decisions and the ability to keep emotions from corroding the framework.”
A key tool in developing such a framework, he writes, is having a financial plan.
Such a plan, he continues, should list all assets and liabilities, establish written goals based on “your values and your vision,” and should detail how much you will need “now, five and 10 years from now, as well as in retirement. Plan for inflation and taxes,” he writes.
Use the plan to decrease expenses, and to become fully aware of your monthly cash flow needs. You should look for ways “to reduce or defer income taxes where possible,” and plan your estate, including “wills, powers of attorney, and life insurance.”
Review your plan at least once a year — keep a copy of it handy if you are working with investment or legal professionals, he writes.
Other interesting discussions in this well-written book include a section on how to take advantage of a TFSA when you are retired.
Money invested in a TFSA, and later withdrawn, has no impact on your eligibility for “federal income-tested benefits.” A TFSA passes tax free to your estate, and you can contribute to a TFSA well past age 71 when you are fully retired, he writes. “Overall, the TFSA is a great tool that will allow you to better manage your taxable income so you do not have to withdraw additional funds from your registered retirement income fund (RRIF),” he writes.
In a chapter devoted to minimizing taxation, he talks about CPP splitting and pension income splitting, and some of the tax benefits an annuity can provide.
While noting annuities aren’t for everyone, Gordon writes that they provide a guaranteed payment for life and usually provides “a much higher rate of return than if you had received money from a guaranteed income certificate.” The book concludes with a detailed look at estate planning and the importance of having a will.
Once you are actually retired, you will notice that some fellow retirees are managing better than others. This probably isn’t by fluke. The ones who travel the most, or have cabins or campers, are almost certainly the ones who put some thought into what retirement would look like many years earlier. The rest of the gang have to manage on what they’ve got to live on.
If you don’t have a pension plan through work, don’t worry — the Saskatchewan Pension Plan is open to all Canadians with RRSP room. You can decide how much to contribute, and they’ll look after the heavy lifting of investing. At retirement, SPP offers the option of a lifetime annuity — a monthly payment you’ll get for the rest of your life — to help make your retirement income predictable and secure. Check out SPP today.
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Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.