Retirement planning checklist

When determining how much you can afford to spend in retirement, many retirees rely on “the 4% rule”¹— a common strategy which suggests withdrawing 4% of your portfolio in the first year of retirement and continuing to do so in subsequent years while adjusting for inflation. This guideline aims to provide a steady income stream while reducing the risk of your tank hitting empty prematurely. It's like setting your cruise control to a steady speed.

Since personal circumstances vary, consult a financial advisor to develop an investment withdrawal plan tailored to your needs.

Expenses in retirement can be hard to visualize, while many assume retirement brings a simple reduction in expenses, the reality is far more nuanced. Some developments that can require careful consideration include:

• The need to increase spending on medical care and personal care;
• Shifting housing costs as a result of downsizing or relocating, and;
• An abundance of leisure time may result in new hobbies or travel that need funding.

To create your new retirement budget, start by charting out expected expenses — from daily living costs to those bucket-list adventures. Be sure to add in buffers or additional funds for large but irregular expenses. Then, prioritize items on the list that must be covered and adjust the “nice to haves” in order to balance your annual budget. Creating a clear budget for expenses is like setting your GPS to ensure you don't wander off into overspending.

Navigating tax implications can add complexity but is an important part of making sure your investments last as long as you need them to. Retirement accounts, like RRIF, LIRA, and RRSP, have certain withdrawal and distribution restrictions, and early withdrawals can become subject to withholding taxes. For example, your RRSP matures when you turn 71, withdrawing funds earlier can trigger a withholding tax. Managing your annual taxable income can help keep taxes down and more money going toward the things you want to spend it on.

Just as you would regularly check your car, review your investment portfolio on an annual basis — looking at your investment objectives and your holdings to ensure alignment with your income needs and risk tolerance.

Here are a few common sources of risk to lookout for:

• Shift in spending habits: Veering away from your budget or covering a large, unexpected expense can deal a significant blow to your retirement security. Check your spending regularly to ensure you have accounted for all expenses and are sticking to your budget.
• Inflation: Inflation is like hitting an incline on your retirement journey — it eats up fuel by eroding the purchasing power of your savings. To counter its impact, include some investments with the potential to outpace inflation, like stocks or real estate, and keep your spending in check to ensure growth of your investments can keep up.
• Longevity risk: Thanks to advances in medical innovation, more people today are living into their 80s, 90s and beyond. With longer lifespans, the risk of outliving your retirement savings may present another important consideration.

Entering retirement should be full of joy and excitement. With thoughtful planning and regular adjustments, you can make this transition a fulfilling adventure. To begin switching from the fast lane to the exit lane, explore iShares Asset Allocation ETFs which are designed to match a wide range of risk profiles, from growth to income. And remember to enjoy the view, make memories, and relish the freedom of your well-earned retirement!