Pre-Retirement

Pre-retirement (friends over 55) preparation is a critical phase in a person's life, involving much more than just financial calculations. It's a holistic process that prepares individuals for the significant transition from their working life to retirement, impacting their finances, lifestyle, health, and social well-being. Addressing these aspects proactively ensures a smoother and more fulfilling retirement.

Financial Preparation

Assess Current Financial Situation:
- Net Worth Calculation: Understand your assets (savings, investments, property, pensions) minus liabilities (debts like mortgage, credit cards, loans).
- Budgeting: Track current spending habits and create a realistic retirement budget, factoring in potential changes in expenses (e.g., less commuting, more travel, increased healthcare).

Estimate Retirement Income Needs:
- Income Replacement Ratio: Determine what percentage of your pre-retirement income you'll need to maintain your desired lifestyle (often cited as 60-80%, but highly individual).
- Inflation: Factor in the impact of inflation on your expenses over a potentially long retirement.

Identify and Optimize Retirement Income Sources:
- Government Benefits (Canada):
  - Canada Pension Plan (CPP): Understand your estimated benefits and the impact of when you start taking them (e.g., earlier vs. later).
  - Old Age Security (OAS): Eligibility and potential clawbacks based on income.
  - Guaranteed Income Supplement (GIS): For low-income seniors.
- Workplace Pensions: Understand your Defined Benefit (DB) or Defined Contribution (DC) plan options, commuted value, and survivor benefits.
- Personal Savings and Investments:
  - RRSPs: Strategies for conversion to RRIFs, withdrawal options, and tax implications.
  - TFSAs: Maximizing contributions and understanding tax-free withdrawals.
  - Non-Registered Investments: Tax-efficient withdrawal strategies.
- Other Income: Rental income, part-time work, annuities.

Debt Management:
- Prioritize paying off high-interest debts (credit cards, lines of credit) before retirement to minimize ongoing financial burdens.
- Consider paying off your mortgage if feasible, or developing a plan for managing it in retirement.

Investment Portfolio Review and Adjustment:
- Risk Tolerance: Re-evaluate your risk tolerance as your time horizon shortens.
- Asset Allocation: Gradually shift your portfolio towards a more conservative allocation, balancing growth with capital preservation, depending on your individual goals and stage of retirement.
- Tax Efficiency: Optimize your portfolio for tax-efficient withdrawals in retirement.

Non-Financial / Lifestyle Preparation:

Define Your Retirement Lifestyle:
- Purpose and Activities: What will you do with your time? Hobbies, volunteering, travel, learning, part-time work, spending time with family. This helps define your social, mental, and physical engagement.
- Social Connections: Plan to maintain and cultivate social networks, as social isolation can be a challenge in retirement. Our Friends Over 55 should continue to cultivate social networks in their pre-retirement stage.

Housing and Living Arrangements:
- Stay or Move: Decide if you'll remain in your current home (aging in place), downsize, move to a new community (e.g., a warmer climate), or consider retirement living options (e.g., independent living, assisted living).
- Costs: Factor in property taxes, maintenance, utilities, and potential costs of modifications for accessibility if aging in place.

Health and Wellness Planning:
- Healthcare Costs: Understand what provincial health plans cover and plan for out-of-pocket expenses (prescriptions, dental, vision, physiotherapy, private care).
- Insurance Review: Assess needs for private health insurance, critical illness, and long-term care insurance.
- Preventative Care: Prioritize regular check-ups, maintain a healthy lifestyle, and address any health concerns proactively.
- Power of Attorney for Personal Care: Designate someone to make healthcare decisions on your behalf if you become unable.

Legal and Estate Planning:
- Wills: Ensure your will is up-to-date and clearly reflects your wishes for asset distribution.
- Powers of Attorney (POA): Establish a Financial POA and a Personal Care POA (sometimes called a living will or advance directive in other provinces/contexts in Canada) to designate trusted individuals to manage your affairs if you become incapacitated. Any of our friends over 55 (pre-retirement) should be reviewing this aspect of their estate plan.
- Beneficiary Designations: Review and update beneficiaries on all registered accounts (RRSPs, TFSAs) and insurance policies to ensure they align with your estate plan and bypass probate where possible.
- Executor Selection: Choose a capable and trustworthy executor and ensure they understand their responsibilities. Consider discussing your plans with them.

Practical Steps in the Years/Months Before Retirement:

Communicate with Employer:
- Inform your employer of your retirement plans, understand pension options, benefits continuation, and any severance packages.
Apply for Government Benefits:
- Start the application process for CPP and OAS, as it can take several months.
Organize Documents:
- Centralize important financial, legal, and personal documents (wills, POAs, investment statements, insurance policies, birth certificates).
Professional Guidance:
- Work with a financial consultant (especially one with CEA and EPC designations), lawyer, and accountant to ensure all aspects of your pre-retirement plan are coordinated and optimized.

Pre-retirement preparation is an ongoing process, often beginning 5-10 years out, and requires regular review and adjustment. Taking these steps allows individuals to transition into retirement with confidence, clarity, and the peace of mind that their golden years will be financially secure and personally fulfilling. Any of your friends over 55 should consider an overall review of important matters in their life at this phase.