A Transition Planning Overview

June 22nd, 2015

As you approach your 60′s, it is important to develop a lifestyle plan as well as a financial plan. It should be noted that these are not independent entities. The lifestyle plan lays out how you are going to spend your time after you “change gears”. Stopping full-time employment opens as much as 55 hours a week to be redeployed for a future timeframe that can be as many as 25 to 35 years.Your financial plan determines how to organize your assets in such a way that they produce a stream of income that will fund the activities determined in your lifestyle plan over the entire future timeframe.

This should be approached as an interactive process. Having completed the first iteration of your lifestyle and then your financial plan, there are two possible outcomes.

Outcome 1: Insufficient Assets

The first possible outcome is that there are not sufficient assets to generate the income stream needed to fund your lifestyle activities. In this situation there are three alternatives as outlined by Av Lieberman of the Retirement Education Centre.

The first is to alter your lifestyle plan in such a way as to reduce expenses. Reducing current expenses enables you to save more for the future. Future expenses can be adjusted to bring future spending in line with cash flows.

The second is to reorganize your investment strategy to generate more investment income. Note that this approach generally involves taking more investment risks. As risk levels increase, the volatility of returns generally rises. And there will be a point beyond which adverse outcomes can jeopardize your lifestyle plan.

The third is to alter your lifestyle plan to include more earned income either through part or full time work. There is a combination of results that can have a dramatic impact on future plans. Time spent working is time spent not spending. The additional income and diminished spending make a significant difference.

It should be noted that it is likely that the required level of earnings is a fraction of your full employment income. What this means is that the range of viable choices expands dramatically.

When considering the alternatives, it is useful to consider those aspects of your current job that provide you with the greatest satisfaction. Then consider those aspects which you dislike. Having done this, you are in a position to identify those opportunities that are attractive and those opportunities that are of no interest to you.

Outcome 2: Excess Assets

The second possible outcome is that there are significantly more assets than needed to fund your lifestyle. This is not uncommon. In my practice, people are generally surprised when they see their net worth projected out, 25 to 35 years into the future. In some cases, they are shocked at the six and usually, seven digit estimates of their net worth in the estate at the time of the second death.

In this case, the focus shifts to determining what to do with your “excess” funds. By excess, consider the amount beyond which the amounts distributed to the beneficiaries in your wills, exceeds your comfort levels. As Warren Buffet says “You can leave people too much money”.

One solution is philanthropy. Given the economic pressures on all three levels of government, every college, university, hospital and institution in Canada will enthusiastically welcome any bequests.

Another solution is to “tweak” your lifestyle plan to increase expenditures. This usually surprises my clients, particularly the husbands. In many cases, I suggest that clients should consider spending more money by, for example, increasing travel and vacation budgets in the early years. It is important to understand that as you age into your 80′s and 90′s, diminishing health can reduce your ability to spend your money.