BUSINESS

Why not ask the retired about retirement finances?

WHERE DO you go for advice about planning your

retirement finances? Why, to those who have retired, of

course. Yet this source of helpful information is negiected

all too often.

Delegates to the annual meeting earlier this year of the Canadian Association of Financial Planners were asked to review a case study in retirement planning. David Hannaford, president of Acumen Financial Pianning, had the bright idea of asking several of his retired clients for comments on their experiences ‘‘and suggestions for those still preparing.’’

Replied one 65-year-old client: “At 45, I was earning a little over $20,000 with a $25,000 mortgage, the usual assortment of short-term debts and three children in school.

“That’s when | started my fi- nancial planning, when I realized my projected pensions would not satisfy my wants (as opposed to needs} upon retirement.’”

This client suggested five key steps:

(1) Have a goal. Decide Luw much money you will need by retirement. Don’t worry if the figure looks ambitious or could be affected by inflation.

You will revise this target many times during the years as your personal circumstances and values change, and as you assess the changing purchasing power of the dollar.

(2) Make a plan. ‘‘Good inten- tions will not get you there,” said Hannaford’s client. ‘‘You must develop a discipline as systematic and demanding as your mortgage payment.”’

Realize this savings amount is not part of your disposable in- come. But establish a balance be- tween present and future.

“Enjoy your youth and good health,’’ the client said. ‘‘Do not set targets that will unduly deprive

Michaei

DOLLARS AND SENSE

your family.’’

(3) Stay with it. You will have short-term difficulties and set- backs as circumstances and values change. But stay with your plan: the payoff will be pride as well as money.

(4) Start early. The time to start is now. Tomorrow is not nearly as good. No matter how modest your rate of savings, compound inter- est, capital gains and time can produce magic — especially if you use a tax shelter like an RRSP.

(S) Take professional advice but act on your own judgment. ‘‘Most of us buy investment experience dearly,’” the client said. ‘‘The good guys and bad guys are not easy to distinguish. Sometimes it is the same guy on a different day.”’

Remember, said the client, many of the financial advisers

IF IT WASN’T FOR REEMA THEY NEVER COULD HAVE ACCUMULATED THIS MUCH WEALTH IN SUCH A SHORT PERIOD OF TIME

earn a living by selling you their product(s). Still, the advice they give you may be good and the product they offer may well suit your needs.

“You must decide and you must accept the responsibility for your decisions.”’

Realize high profit normally goes with high risk; safety gives a more modest payback. Choose in- vestments with which you feel comfortable. These will vary and probably increase in number as you grow in experience.

This client showed how simple it can be to set a goal.

“L said when I was 40 that I would need an income of $50,000 a year when | retired at age 60. My company pension would pro- vide about $33,600, CPP and OAS $7,000 and so my savings would have to produce $9,400.

“If my savings earn eight per cent, 1 would need total capital of $117,500.""

Of course, conditions will change along the way. But it's a goal, a definite start, and some- thing on which to base the plan.

At that time the client expected income to increase from $20,000 to $60,000 a year by retirement, averaging $40,000 over 20 years.

So the client aimed to save 15 per cent of gross pay every month. (Ideally, investment growth should keep pace with in- flation.)

“Saving 15 per cent is tough, especially with a mortgage and children to educate. But nobody says it is easy.

“Try to skim the savings into a separate account as soon as you deposit your paycheque. Once set and met, your savings increment will become a non-income item. You will satisfy your month-to-

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“

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