A solid financial plan is the surest way to financial freedom and a must-have to achieve your best retirement outcome. It will help you to remain focused on the big picture while navigating stressful stock markets. As the world plunges deeper into the 2nd and 3rd waves of Covid-19, and as the U.S tries to move forward following one of the most contentious election outcomes in U.S. history, one trend that is likely to persist is market volatility. So how does one give themselves the best chance to make the right investment and retirement decisions while trying to remain calm and focused on the prize?
The Financial Plan
It’s very easy to lose sight of your long-term financial goals during turbulent markets. Stock markets can be scary and financial headlines can be scarier. Portfolio statements can fluctuate or simply drop precipitously at the height of a crisis. Knowing what you own and understanding that your financial plan has taken volatility into account will help during tough times.
Having a solid plan helps in many ways:
Financial Knowledge: Creating a financial plan highlights the main aspects of finance that impact you. If you’re a stock market and/or real estate investor, gaining knowledge that will help you remain calm during tough times is critical. Avoiding big mistakes is mainly about staying calm, using acquired knowledge, and leaning on a well-conceived plan. Sailors will relate to this concept very well. An experienced sailor will plan everything from ensuring proper maintenance of their vessel, to shifting tides and bad weather. From experience, they have built into their plan to anticipate that a GPS or some other piece of equipment will eventually fail, at which point they will need to be able use navigational charts to safely complete their journey. A sailor understands that leaving port without a plan is reckless and will lead to bad outcomes.
Saving: How does one save? Having a savings goal means controlling your own financial destiny. Where in the budget are your available savings? Perhaps the answer is in taxes? Many Canadians do not take advantage of all the available tax credits and deductions. Are you optimizing your savings?
Income and Cashflow Efficiency: Planning your cashflow helps you make the most of your income from various sources such as pension income, non-registered savings, TFSA, RRSP/RRIF or a holding company.
Maintain Your Purchasing Power: A long and comfortable retirement needs to take inflation into account. How much will your shopping and food basket cost you in 20 years? Knowing how to account for and preserve your purchasing power matters.
Gifting: Whether to family or charity, there are very efficient ways to plan your giving. More and more Canadians are giving during their lifetime. Saving taxes may be one benefit to planning gifts.
Peace of Mind: Family security is a truly powerful state of mind. Through my 20 years experience of preparing and delivering financial plans, I’ve been able to witness the feeling of empowerment and peace of mind derived from the creation of a well-conceived plan for my clients. I’ve seen it many times and describe it as akin to the feeling one gets from paying off a mortgage, paying for a child’s education or finally, being able to retire.
The 2 Most Common Reasons Many People Fail to Plan.
These are the 2 main reasons people fail to plan their financial future:
- Fear of failure: Fear of failure prevents many of us from experiencing some of life’s most wonderful moments. Think of your own single most rewarding life accomplishment. It probably took much courage to achieve and this is why it ranks as your number one. Whatever that was for you, it was achieved with a plan I’m sure. Attaining a comfortable retirement is absolutely an amazing life achievement. If worrying that you won’t be able to achieve your goal is preventing you from creating your financial plan, just try it. The most common feedback I receive after the presentation of a plan is “Wow, I didn’t think I could retire this well” or “I knew it was possible but seeing it on paper is a great feeling”. Don’t let your fear of the failure prevent you from sitting with a qualified planner to start mapping it out. Did you know #1: Did you know that most 65 year old Canadians who have worked and contributed to the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), and are eligible for Old Age Security (OAS), can receive up to $15,373 per year in benefits? That’s $30,746 for a married or common law couple who both worked through their lifetime. Add other pensions, retirement savings and/or rental income and you might get there more comfortably than you thought! Did you know #2: Did you know that as a business owner with holding company can deliver up to $37,500 per year in tax-free dividends to named beneficiaries of a family trust? Did you know #3: Did you know that a financial planning exercise can usually be completed in two sessions of 1 hour each? Thereafter, a periodic check-up is all you’ll need.
- Disconnecting from your future self: It’s easy to put off financial planning by convincing yourself that you will deal with it later. Sometimes, a retirement goal may appear so far away and abstract that your present-self can easily disconnect from your future-self. Like exercise and a good diet will improve your health, a bit of financial planning can improve your capacity to enjoy a healthy life well into retirement. Did you know #4: Did you know that recent studies have demonstrated a correlation between retiring early and living longer? In fact, one study showed that on average, those who retired in their mid-sixties drew on their company pension for a little over 2 years, while those that retired in their mid-fifties collected their pension for 25+ years on average. Did you know #5: Did you know that most financial planners will incorporate the cost of your financial plan within your existing portfolio management fee structure? Speak to a qualified financial planner who you can design and implement your plan and save your money.
“Our goals can only be reached through a vehicle of a plan in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” ― Pablo Picasso