Speaker 1: Planning for your retirement is more than just saving money. It's about avoiding mistakes that could mess up your financial security. Today, we'll uncover 10 things that could blow up your retirement and money traps that you really need to avoid. Money Trap Number 1. Unrealistic Lifestyle Expectations and Lifestyle Inflation Understand the true cost of your retirement dreams and lifestyle choices, whether it's purchasing a second home or traveling extensively or pursuing expensive hobbies. Evaluate ongoing expenses and maintenance costs to avoid financial strain. It's tempting to splurge on luxury purchases early in retirement where you can overspend quickly and deplete your savings. To avoid this, you need to bake it into your plan. It's okay for you to embrace the go-go, slow-go, and no-go type of planning where you're spending a lot more when you first get started, but you need to create a budget that aligns with your retirement income and long-term financial goals. Adjust your spending habits to account for inflation and expected expenses. You need to prioritize experiences that you really value and bring you long-term fulfillment, without having to compromise your financial security. Money Trap Number 2. Family Support Unfortunately, it can be a real financial strain. Supporting family members financially can strain your retirement savings if you are not managing it carefully. You need to set clear boundaries and guidelines for financial assistance and consider the long-term impact on your own security and whether or not you're enabling somebody. Encourage family members to seek their own financial independence early. Offer non-financial assistance or guidance. Be ready to prioritize your retirement needs to ensure that your financial resources are preserved for your future. This is the quintessential put-the-mask-on-yourself-first-before-you-help-those-in-the-next-seat. Culturally speaking, this is very important to me that I can help the people that I really care about. This is how I was raised and I intend to continue this. What do I do about it? Instead of pulling it out from general expenses for my clients, we actually, if this is important, let's say they have a child with disability or an infirmity where they're going to be financially reliant long-term, we carve that out as a part of their retirement cash flow. If you really want to do this for your family, you need to do the same. You cannot just guess how much help you can give or you can't. Let's move on to money trap number three. Let's address some common investment pitfalls. You need to exercise caution when making investment decisions to avoid just blowing up and jeopardizing your financial security. Remember, it's boring advice, but you need to diversify your portfolio across different asset classes to mitigate risk and improve stability. Stability is really a word that I'll probably keep repeating here because you are no longer accumulating. You're now turning on the paycheck from your nest egg. You need to consider your cash flow. Pension plans call this liability matching. You need to understand how much money you're going to be withdrawing from your nest egg and there has to be stable value funds or source of income that's there to meet what you need to spend. Consider your risk tolerance, your goals, your time horizon, and be careful when selecting your investments. You need to regularly review your portfolio and adjust based on market conditions and your objectives. It's fine if the market is getting a little too rich for you to take some risk off the table. You've gotten to the point now, as long as you know that you'll have sufficient income, you are making different decisions than somebody that is constantly saving money every month and their goal is to just leave it alone and let it grow. You need to be careful about this, so consult a financial advisor who focuses on retirement drawdowns and decumulation and make sure that they can actually provide you with valuable insights and informed choices. Money trap number four. Ignoring health and wellness costs. See, Canadians benefit from universal health care. However, ignoring the costs associated with maintaining your health and wellness can still impact your retirement, not just financially. But let's focus on the money for now. Expenses related to dental, vision, and medication and private care can add up very quickly. So, investing in your healthy lifestyle right now before you even retire through regular exercise, a balanced diet, and routine checkups can help mitigate these surprise costs. Additionally, consider setting aside funds for wellness activities. I have a client right now where she's calling next year her year of joining. She's going to be joining walking clubs. She's going to be joining a golf club. She's going to be joining a personal training class. So, for you, it could be fitness classes, therapy, and other preventative measures to ensure that you are healthy enough to actually enjoy the retirement you deserve. Money trap number five, or as I call it, leaving a tip for the CRA. See, navigating taxes in retirement is crucial in preserving your savings. Not just preserving, you are likely going to be able to spend more and enjoy more of your resources if you understand how different sources of income, such as CPP and OES benefits, impact the timing of your withdrawals from your retirement accounts that are taxed or pre-taxed. So, utilize different tax-efficient strategies like your RRSP and your TFSA based on different timing and different goals. It's probably a great idea for you to find a way to balance out your taxes all throughout your life instead of just looking at your tax for 2024, 2025, 2026, and 2027. Look at your lifetime income. This is where you need to consult with a tax planner and a tax strategist, not just somebody that files your taxes every year. Money trap number six. This is a tough pill to swallow for many, but it's taking financial responsibility. Now, more than ever, you need to really become your own money hero. You have to take ownership of your financial decisions to secure a stable retirement. You need to proactively manage your finances by tracking your expenses now and saving diligently. And it's probably the best time for you to start crushing debt away. And of course, avoiding any unnecessary debt going forward. Educate yourself about retirement planning and investment options to make informed decisions. That's what this is all about. Do not abdicate the next 30 years of your life to somebody else's design. I will encourage you to consult with a CFP, that is a retirement planning specialist or a retirement income specialist. They will create a personalized retirement strategy and draw down plan for you. They'll even encourage you to build an emergency fund and a contingency plan because the unexpected is to be expected. There's going to be expenses that you might not have thought of, but they will have insights on based on the other clients that they've worked with. Money trap number seven, it's ignoring longevity risk. Planning for a long retirement is a life expectancy decision. Oh, my folks didn't live that long, so I'm probably not going to. I have heard this again and again and again. That's OK, even if that's how it materializes. However, you need to understand how a long retirement could force you to need more savings, because if you ignore this, your savings might not last. And that could lead to financial hardship much later in life. Consider the health care expenses and inflation and long term care costs that you're probably neglecting in your plan. There are strategies that can help you fight longevity risk, meaning not run out of money. That's all this really means. Start off by looking at and stress testing if your money will last until 100 years old. Life expectancy for Canadians is still about 85, 86. But the chances of you living beyond that, especially as a couple, one of you is going to live beyond that, is going to be more realistic than ever. There are financial products like annuities that means you are buying a pension and you won't run out of income. I'm not necessarily recommending that for everybody, but you need to look at the tail end of retirement as well. You need to adjust your portfolio for sustainable income. This means making sure there is enough equity positions in your portfolio that will actually grow and beat inflation. Otherwise, you're almost ensuring that you're going to run out of money when you get to your 90s money trap. Number eight, financial overconfidence. There's been countless surveys where it shows that men in their retirement are actually getting more and more confident about their financial decisions, even though technically speaking, they're becoming less in tune. I know it sounds like I'm calling you out, but this is why you need a comprehensive plan when you're planning for your retirement, because you could be overestimating your returns or you're underestimating your expenses and that could lead to a painful shortfall later on. You need to set things in place so you have a cue in your mind that tells you when it's time to review. See, regularly reviewing and adjusting your plan to reflect the changing circumstances of your life. Your life first before the market is important. Having realistic expectations about your income and your expenses is so important. I know that sounds basic and sounds repetitive, but if you make this mistake now and you bake it into your future of plans, it's very likely that you're not creating a plan. You're creating fantasy. I've heard many times before that there's more fiction in spreadsheets than there is in novels. Don't participate in that. A true financial advisor can help provide clarity and a gut check for you and perhaps even a kick in the pants if you are living through false assumptions. Money trap number nine. It's simple risk mismanagement. Retirement success hinges on managing risk effectively. Many retirees unfortunately fall victim to scams such as identity theft or you know that Netflix show where there's a swindler, I can't remember the name. We'll pop that in here and it'll probably jog a memory for us. But see, making these simple mistakes and trusting the wrong people can lead to you depleting and running out of money. So you need to stay informed about common scams. There's always going to be resources from the government website, the RCMP site. You need to stay informed. You also obviously need to avoid overly risky investments and speculative ventures that can lead to significant losses. I've already talked about diversifying your portfolio, but this is a good time to talk about a specific product or a specific tool out there where the salesperson of these financial instruments will tell you that if you invest in this, you automatically get a tax deduction for whatever you've invested. I won't name it, but the reason why that tax incentive exists is they're practically assuming that by investing in this venture, there's a very high likelihood that you're going to experience a capital loss. And the unfortunate part is I have seen this recommended to people where they're considering commuting their pension. So these salespeople, what they'll do is they'll convince you to commute your pension so that they can invest on your behalf because it will offset the tax liability of commuting your pension anyway. That is a very specific and a very dangerous investment strategy for most people. If that's being recommended to you, you really need to make sure you seek second qualified opinions. Money trap number 10, it's the lack of estate planning. I know I talked about retirement pitfalls, but failing to create a comprehensive estate plan can lead to significant financial and emotional challenges for your loved ones. You might think about an estate plan simply for passing away in your will if you don't have a yacht or a mansion to leave behind that you don't need it. But see, an estate plan ensures that your assets are distributed according to your wishes. Whether or not you have a will, you already have an estate plan. It's defaulted to whatever the government, whatever the provincial government is planning for you, which many of you probably will disagree with. So it's better for you to craft your own wishes, put that in writing, put that in a document. This will help you minimize taxes, minimize legal fees, and minimize potential family disputes as well. See, it's an important element of retirement planning because by baking in your estate desires, what's left over after retirement, if you're putting that into a target for your retirement, it actually allows you to spend a little bit more. Many of you are falsely believing that I don't have an estate plan, I'll just leave whatever's left over to the kids. But what you're actually doing subconsciously is restricting yourself from living the life that you actually want so that there's something left over. But with an estate plan, we can quantify what you want to leave behind and if that's already met, you give yourself permission to spend a little bit more now. So let's talk about the legalities of that a little bit. You could draft a will, establish a trust if it's necessary, but the commonly neglected one is just updating your beneficiary designations to your RSPs and other accounts. Creating a power of attorney for you and your healthcare decisions if you're no longer able to make decisions, that's actually part of an estate plan. If you're no longer allowed or capable or you don't have the capacity to make decisions for yourself anymore, that's where these legal documents will actually help preserve your own intentions. Obviously, I'm not a lawyer, so you need to review this and look at this with the proper professional. We make recommendations for our clients, but they still need to double check that with their attorneys. You also need to regularly update this. You don't craft a will today and all of a sudden, 15 years from now, if there's a bunch of life changes, it might not be reflective anymore. So regularly update the plan and adjust it to your changing circumstances and how the law and how the tax rules change. I'll say it again just to avoid any compliance concerns, you need to speak to a lawyer about the legal documents you need to create a sound and a thorough estate plan. So those are the 10 retirement money traps that I would avoid and I would look at carefully so that you can make informed decisions. I'm just asking you to be your own advocate, to stay vigilant and be informed with your own decision making. So here's the question, which of these things that I talked about resonated the most with you or which one are you seeing happen the most with your friends and family members? I'm excited to hear your opinion. Let's treat this as a survey and we'll do a follow-up video. For more insights on navigating retirement wisely, check out this essential video about the three documents you need for estate planning. It should be right here. Thanks for watching. Be sure to subscribe and share our channel so that we can grow and help other Canadians just like you. God bless you. Bye-bye.