In our parents' and grandparents' world, the standard script for financial planning was comprised of... 'saving for retirement' and 'living off our savings'.
In other words, life was generally broken into 3 phases... pre-employment, employment and retirement. When we plan, it is generally assumed we are past the first milestone and are already working. Most planners and financial planning programs work on the "now I am working, now I am not" premise with a savings regime, a retirement age and a final retirement phase.
Maybe it is time to re-think the whole approach to planning, and remove 'retirement age' from the equation.
The most obvious reason is that more and more 'near seniors' are thinking about some form of partial retirement. If I plan to scale back my full time job and take on part time employment, then what defines my 'retirement age'?
Other situations can occur such as ... I have saved up a significant amount in my RRSP and now I plan to use the proceeds as down-payment on a home. My RRSP takes a hit (perhaps a big hit) and then it gets refreshed at a future time. Or, I plan to quit work at some future time and take a prolonged sabbatical to refresh my education before I re-enter the workforce. Is that a 'temporary retirement'?
Or.... at some point after I quit work, and I start drawing down my nest egg, my savings get a nice fat shot in the arm from a capital gain such as downsizing my house, selling the cottage, or (heaven forbid) an inheritance. Is that year when the capgain hits, deemed to be a 'retirement relapse'... sort of like going back to work for a year and earning a big fat paycheck.
So... maybe we should think of the financial planning paradigm as something where throughout life there are periods when money flows to us (salary, pension, spousal support pmts, rental income...) which is sufficient to live on, and periods when those inflows are not sufficient to live on. We simply move investment capital in and out of savings in order to secure a certain lifestyle.
Just a thought.
In other words, life was generally broken into 3 phases... pre-employment, employment and retirement. When we plan, it is generally assumed we are past the first milestone and are already working. Most planners and financial planning programs work on the "now I am working, now I am not" premise with a savings regime, a retirement age and a final retirement phase.
Maybe it is time to re-think the whole approach to planning, and remove 'retirement age' from the equation.
The most obvious reason is that more and more 'near seniors' are thinking about some form of partial retirement. If I plan to scale back my full time job and take on part time employment, then what defines my 'retirement age'?
Other situations can occur such as ... I have saved up a significant amount in my RRSP and now I plan to use the proceeds as down-payment on a home. My RRSP takes a hit (perhaps a big hit) and then it gets refreshed at a future time. Or, I plan to quit work at some future time and take a prolonged sabbatical to refresh my education before I re-enter the workforce. Is that a 'temporary retirement'?
Or.... at some point after I quit work, and I start drawing down my nest egg, my savings get a nice fat shot in the arm from a capital gain such as downsizing my house, selling the cottage, or (heaven forbid) an inheritance. Is that year when the capgain hits, deemed to be a 'retirement relapse'... sort of like going back to work for a year and earning a big fat paycheck.
So... maybe we should think of the financial planning paradigm as something where throughout life there are periods when money flows to us (salary, pension, spousal support pmts, rental income...) which is sufficient to live on, and periods when those inflows are not sufficient to live on. We simply move investment capital in and out of savings in order to secure a certain lifestyle.
Just a thought.