Getting ready for retirement’s three phases
Financial needs vary through ‘Go-Go’, ‘Slow-Go’ and ‘No-Go’
In November, Lise Andreana and her husband spent three weeks on Madeira Island, where they dined on the “fabulous Portuguese cuisine that is unique to the region,” tippled the cheap and plentiful local wine and explored the dramatic scenery. “The island is very lush,” Andreana says. “Imagine Hawaii with European architecture and the European lifestyle.”
Currently wintering in Palm Springs, Calif., and Tucson, Ariz., the couple are planning another getaway this spring. Their short list of destinations includes Bordeaux in France, Dubrovnik in Croatia and San Miguel in Mexico.
Andreana is in the thick of what many financial planners refer to as the Go-Go stage of retirement. A former Niagaraon-the-Lake financial planner, she retired just over three years ago, turning her business, Continuum II, over to her son Peter. She is well aware that good health doesn’t last forever. Her attitude: “At some point between our mid-70s and mid-80s, we won’t be doing much. You have do it while you can.”
“That first [Go-Go] phase of retirement tends to be the most expensive,” said Paul Shelestowsky, a senior wealth adviser with Meridian credit union in Niagaraon-the-Lake. Not only do people have to relearn how to budget when their biweekly paycheck no longer arrives like clockwork, but, “in the first 10 years of retirement, they have the mental and physical ability as well as the desire to do all the things they’ve always dreamed of — whether that’s golfing or travelling or helping family members buy a house.”
Shelestowsky advises viewing retirement as a 30-year period, divided into 10-year increments, with the first and the last periods generally the most costly.
The Go-Go period is generally followed by a less active phase, in your mid-70s to mid-80s, which planners tend to refer to as the Slow-Go phase of retirement.
“In the first 10 years of retirement, they have the mental and physical ability as well as the desire to do all the things they’ve always dreamed of.” PAUL SHELESTOWSKY SENIOR WEALTH ADVISER
“In that mid stage, you’re probably not travelling as much because you don’t have the stamina for it,” Shelestowsky says. “You’re more likely to be enjoying quieter more homebased activities.”
During the final No- Go phase, health or mental problems can sideline retirees and they may well need care either in a retirement or a longterm care home.
What many people don’t realize is that the costs can vary widely for each of those phases, Shelestowsky says. “When we start the conversation about retirement income projections with clients, I usually explain to them about the three stages,” he says. “They understand it from a common-sense point of view, but it’s not something that is really on the radar screen when it comes to budgeting money. Most people just think they need to budget a set amount through retirement.”
When it comes to financial planning, Shelestowsky contends, it helps to visualize what you’d like your retirement to look like, particularly during the Go-Go phase.
Without those details, “the projections are really just guesswork,” Shelestowsky says. “We tend to use a rule of thumb, like you need 75 per cent of your pre-retirement income after retirement. But the closer we can get to the real numbers, the more faith we can have in the projections.”
With the different income requirements during the three phases of retirement, Shelestowsky suggests clients aim for a level income stream at the highest point of spending.
“My planning process is basically hope for the best, plan for the worst,” he says. “If your income requirement drops in that middle period, that means you’ve got extra cash for emergencies or for gifting.”
He also advises revisiting your budget annually to make sure you’re on track and factoring in 2-per-cent inflation throughout the 30-year period of retirement. “Then you know that in today’s dollars, even 30 years from now you’re going to have the same purchasing power,” he says. As part of the budgeting process, Shelestowsky encourages clients to move part of their RRIF money into a TFSA every month to create an emergency fund for trips, home repairs and other needs or wants. “Even if they don’t need the money that year, it’s a good way to deregister it,” he says. “You’re moving it out of something that is taxable upon death into something that is not taxable upon death.”
Andreana and her husband have done just that. They have a “capital costs” account, in case the roof needs replacing or the car breaks down. And they put $1,000-plus monthly into a high-interest account specifically for travel. “It generates a little bit of interest and it’s easily accessible,” she said.
Andreana admits she has benefited from the example of others when it comes to planning for retirement. She has not only watched her former clients through the stages, she has her own parents’ experience. In their Slow-Go phase they spent very little, she said. “They were content to sit at home and putter in the garden — their account never went down.”
But the last stage of her mother’s life was the most expensive. In the year before she passed away last August, it cost about $8,500 a month for her to stay in a private, long-term care home that specializes in memory problems. “There are other places available for less,” Andreana admits. “But my mother had Alzheimer’s and they were wonderful with her. It was nice not to have to worry about the cost.”