Financial Planning Decoded: How I Empower Clients to Master their Finances by Simplifying the most Commonly Asked Financial Planning Questions

Covering everything from how soon you should start investing, to strategies for investing during retirement, here are my comprehensive responses to the most frequently asked questions that investors ask me.

If only achieving a retirement filled with carefree vacations, lavish dining experiences, and quality time with family were uncomplicated. While realizing the retirement of your dreams is feasible, it demands meticulous planning and consistent savings. However, there’s no universal formula for attaining financial freedom; individual needs and paths to get there vary.

A 2019 survey by Scotiabank highlighted a significant concern: 50 percent of Canadians lack a concrete retirement plan, and 70 percent worry about inadequate savings. Despite the diverse stages in people’s planning journeys, common retirement-related questions persist.

In this article, I will address the primary inquiries sourced from Google Trends, which happen to match the common questions I get in my practice every day.

How much do I need to retire?

We usually answer that question with another…How much do you need to spend in retirement?

Initially, our approach involves assessing the anticipated expenses required for a comfortable retirement. If you’re unsure about this figure, a common starting point is a percentage of your current income, typically around 70%. If you feel you need more, increase the number or less, decrease the number. This estimation however, serves as an initial benchmark for planning your retirement budget.

Following the assessment of your current situation, we proceed by considering your current savings rate and projecting its growth at a rate that aligns with your tolerance for market volatility. Subsequently, we factor in the long-term inflation rate, usually around 3%, to estimate the increase in your future expenses. This comprehensive projection accounts for both the growth of your savings and the potential rise in living costs.

In the final stage, we incorporate any existing employment pensions, if applicable, alongside potential government benefits for which you qualify. This combined sum is then deducted from your projected future financial requirements. The resulting figure reflects a more precise estimation of the financial provisions needed for your retirement.

Subsequently, we construct a portfolio designed to generate income primarily through dividends to support your preferred lifestyle. Our targeted rate generally falls within the range of a 4–5% yield, contingent upon the specific financial support you need. This portfolio structure aims to ensure a steady income stream that aligns with your individual requirements.

It’s important to note that these ball park calculations are made before accounting for taxes. The projected figures and rates discussed are gross amounts and don’t incorporate potential tax implications. Therefore, it’s essential to consider tax obligations when refining your retirement financial plans. After all this is a ESTIMATE for an article. To get a concrete number, complete a comprhesive financial plan with a professional.

For instance, let’s consider a simple “ball park calculation” with Jim, currently earning $100,000 annually. He is uncertain about his retirement spending needs, so we set the estimated retirement requirement at 70% of his current income, amounting to $70,000 per year.

That $70,000 need is projected over the next 10 years to increase, and so we inflate that amount at 3% annually. This future lifestyle cost equates to around $83,671 in tomorrow’s dollars. Jim expects to have a pension and some government benefits paying him a total of $30,000 upon retirement, which reduces Jim’s total retirement needs from his portfolio to approximately $53,671 annually. To cover his expenses with a portfolio paying a 5% yield rate, Jim would need around $1,073,420 in tomorrow’s dollars to maintain his current lifestyle at retirement without eroding principal.

Also important to note, a good financial plan will evaluate the total amount needed for your retirement by considering what you’ve already saved, and then figure out how much more you need to add in monthly contributions to ensure you reach your retirement goals.

In Jim’s case, he has current savings of $200,000, and aiming to reach a future target of $1,073,420 in tomorrow’s dollars, with an 8% growth rate, Jim will need to bridge the gap with monthly contributions of approximately $3,560.00 dollars per month.

I just got a lump sum of money. Should I pay my Mortgage down or Invest the proceeds?

The decision between paying off your mortgage and investing the money depends on two primary factors: the interest rate on your debt and the performance of the financial markets.

In an extreme scenario where the mortgage interest rate is exceptionally low, such as 2.9%, and the financial markets have recently experienced a significant downturn or sell-off, two considerations emerge. First, the low mortgage interest suggests the potential to obtain better returns by investing in the market rather than paying off the mortgage. Secondly, following a market downturn, investing funds might present an opportunity to buy assets at potentially lower prices, aiming for better future returns.

Indeed, in the above scenario of a low mortgage interest rate and a significant market sell-off, the favorable conditions (and most obvious answer) lean toward investing the available funds rather than using them to pay off the mortgage.

In the opposite extreme scenario, where the mortgage interest rate is high, around 8%, and the markets have shown a significant 25% increase over the last year, the favorable (and more obvious choice) would be to lean towards paying down the mortgage principal rather than investing the funds. The high mortgage interest rate indicates the potential benefits of reducing the debt burden rather than seeking investment opportunities in a market that has already shown substantial growth.

When I engage with clients, the decision-making process involves discussing the factors described above, in addition to conducting calculations and understanding their emotional perspective regarding mortgage debt. By considering all these elements, we usually arrive at an answer that aligns best with their individual circumstances and preferences. The outcome often reflects a solution tailored to the client’s financial goals and emotional comfort level regarding their mortgage debt. In short, a little math, and a little examination of your feelings towards carrying the debt load will yield the best answer for you.

What returns can I expect from my portfolio?

The solution lies within the makeup of the portfolio, your comfort with risk, and the availability of various asset classes. For example, a conventional portfolio with a 60:40 ratio of stocks to bonds delivered an average annual return of about five percent from January 1, 2000, to December 21, 2021. Presently, investors have the option to explore assets like real estate, private debt, and private equity, which offer returns independent of the stock market’s fluctuations. Such diversified portfolios have yielded average returns surpassing seven percent annually during the same period.

Certain clients find satisfaction with an average return of five percent and prioritize low risk, while others seek higher returns and are open to assuming more risk. Engaging in the planning process enables clients to visualize how risk, along with factors such as inflation and taxes, influences the overall financial plan. This exploration helps individuals make informed decisions aligned with their risk tolerance and financial objectives.

When is it too late to start investing?

NEVER. The timing to start investing is never wrong or bad. However, the key factor for a comfortable retirement is time — interest compounds over the years. Your 30s and 40s often entail higher expenses due to responsibilities like children and mortgages, while many individuals reach their peak earning potential in their 50s. You might consider increasing investments around the age of 45, as some childcare expenses decrease. Yet, commencing investments in your 20s or earlier is still optimal. Even if you scale back in your 30s, you can resume later. If you’re in your late 40s and haven’t saved, starting now and contributing what you can is crucial — delaying further won’t be advantageous.

In short, beginning investments earlier offers significant advantages, but it’s never truly too late to start. Commencing later in life necessitates larger contributions to compensate for the lost years of compounding. Engaging in the planning process sooner enhances the likelihood of achieving one’s financial goals.

How should I invest when I’m retired?

We touched on this in the first question, but a general “rule of thumb” is that when you’re retired, the shift in investing typically involves transitioning from a growth-oriented portfolio (where the stocks owned do not often pay dividends ) to an income-focused portfolio where they do. This income portfolio includes stocks, REITS, bonds and other income investments that provide regular dividends and distributions to supplement your retirement income.

Do I need an Investment Advisor to invest? Why?

The simple answer is no — you do not NEED an investment advisor to invest with. However, collaborating with a financial advisor is more than just a sound financial decision — it’s a gateway to enhanced well-being and greater financial success. Research has consistently shown that individuals working with an advisor experience higher levels of contentment, reduced anxiety, and a remarkable increase in their overall net worth. Studies reveal that those guided by advisors typically achieve two to three times the net worth compared to those navigating the financial landscape without professional guidance. This significant difference underlines the invaluable role an advisor plays in empowering clients, providing not only financial security but also a sense of confidence and peace of mind in their financial journey.

Have Questions? Contact us

We’ve assisted our clients through every stage of life. Even when you’re not aware that something might impact your financial future, it likely will to some extent. Engaging in a conversation with your investment advisor about any financial changes is an excellent approach to keeping your financial goals in focus.

For more information or to connect with me, you can reach out via email at [email protected] or get to know me better by exploring my engaging video content on YouTube https://www.youtube.com/@joemacek.

I share valuable insights and discussions on financial planning, market commentary, and investing concepts that can further enrich your understanding. Join me on my channel to discover more!

Don’t hesitate to reach out today at 1–888–324–4259 to discover more about how we can help you achieve your investment milestones.

Joe A. Macek, FMA, CIM, DMS, FCSI

Investment Advisor, Portfolio Manager

iA Private Wealth | iA Private Wealth USA

Toll Free North America: 1–888–324–4259

Email: [email protected]

238 Portage Ave, 3rd Floor

Winnipeg, Manitoba R3C 0B1

26 Wellington Street East, Suite 700

Toronto, Ontario M5E 1S2

Vanguard Study: https://advisors.vanguard.com/insights/article/putting-a-value-on-your-value-quantifying-advisors-alpha

iA Private Wealth is a member of IIROC and the Canadian Investor Protection Fund. iA Private Wealth (USA) Inc. is a registered investment adviser with the SEC. This platform is solely for informational purposes. Investing involves risk and possible loss of principal capital. Comments by viewers or third-party rankings and recognitions are no guarantee of future investment outcomes and do not ensure that a viewer will experience a higher level of performance or results. Public comments posted on this site are not selected, amended, deleted, or sorted in any way. If applicable, certain editing of personal identifiable information and misinformation may be deleted. Adviser believes that the content provided by third parties and/or linked content is reasonably reliable and does not contain untrue statements of material fact, or misleading information. This content may be dated. Please visit the following page for further disclosures related to iA Private Wealth (USA) Inc.: www.iaprivatewealthusa.com