Author: Gary M. Renaud, RFP, CFP
I suppose as a result of turning 40 this year, like most
Canadians my age, I'm beginning to turn my attention increasingly
to the day my wife Nancy and I can retire in comfort.
My reflections have been caused by the fact that I can now
easily remember 20 years ago when I was 20-and it doesn't seem that
long ago at all.
What is even more disconcerting is the fact that 20 years from
now I will be 60-Wow! it doesn't seem possible. Retirement is
approaching quickly.
As a result, I've begun thinking about life more sumplistically.
My view, actuarially speaking as a 40 year old, non-smoking male,
is that my lifespan will last 1,000 months or to approximately age
83.
On this basis, I have come to the conclusion that one's life can
be divided into three distinct phases:
PHASE I: The first 250 months - To age 21 - No
Pays yet! Born, Crawl, Talk, Walk, Learn, Play.
PHASE II: The next 550 months - To age 65 - 1100
Pay Cheques, Job, Marriage, Kids, Acquire Assets and debt,
Eliminate debt, save for retirement and live too.
PHASE III: The last 200 months - To age 83 - 400
Pays needed (minimum)
Retirement:
The quality of my retirement lifestyle will be determined by the
level of liquid assets accumulated in the financial hourglass over
the previous 550 months.
Don't be depressed; I wasn't. What this has caused me to do is
to become more focused on making "smart choices" with my money -
choices???? Yes, everyday choices like houses, cars, meals out,
vacations, clothes and the toys that I buy
This means that I have to clearly separate my wants from my REAL
needs and use logic and not let to let emotions dictate the daily
choices I make with my money. Now that I can no longer depend on
anyone else to provide for me, I must take control over my
financial destiny - NOW!
This means postponing present consumption in order to be in a
position to consume at some point in the future during my
retirement. In addition, should there be any residual, I would like
to maximize the inter-generational wealth transfer to my
children.
Given that there are only two ways to make money - me at work (I
know I can't work any harder), and my money at work. This means I
have to find ways to make my money work harder! What is this so
important?
Unlike our parents who retired at 65 and lived eight years in
retirement on average to age 73, I want to retire at 60 and given
better health/lifestyle, I will live to age 83 or approximately
1,000 months.
With this in mind, I will need to accumulate a large liquid pool
of capital in order to create a sustainable, inflation-proof income
for a period of at least three times longer than my parents.
Therefore as a prudent financial planner, I must plan it
perfectly and have the money expire when I do. But what if I'm
wrong and I disappoint myself by living too long and potentially
outliving my money! McDonald's doesn't hire at age 83!
As a result, I have altered my perception of risk which is now
not the loss of my principal but more importantly, the loss of
purchasing power due to inflation and taxes which may cause me to
outlive my capital. This means the investment strategies which I
now use are directed towards a diversified, long-term growth
portfolio because my investment horizon is not 20 years until I
retire, but really as long as I live!
As Henry Ford once said, "If you don't know where you are going,
any road will take you there." Therefore having a clearly defined
financial roadmap to know where I am, where I want to go and how
I'm going to get there is critically important to ensuring my money
lasts as long as I do.
With the world of global finances becoming increasingly more
complex, Canadians must become more focused on their financial
objectives and abandon procrastination or the "Do it yourself
approach with NO HELP" funds. You don't write your own health
prescriptions, so why would you try to write your own "wealth"
prescriptions!
Today, more and more Canadians are utilizing the services of an
independent, professional financial planner whom they trust
implicitly to help guide them on their financial journey in order
to achieve their personal objectives. So should you!
Remember your life is only 1,000 months and in order to live in
comfort today and in the future during retirement, the decisions
you make with your money every day will ultimately affect your
financial hourglass. Don't disappoint yourself.
From the Ottawa Citizen, Tuesday, January 23, 1996.
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