In this Episode, James Parkyn & François Doyon La Rochelle present James’ latest eBook called “The New Retirement”
This easy-to-follow guide summarizes the topic in 12 pages and can be used as a toolbox for future retirees and their spouses.
Read The Script:
1) Introduction:
François Doyon La Rochelle:
You’re listening to Capital Topics, episode #62!
This is a monthly podcast about passive asset management and financial and tax planning ideas for the long-term investor.
Your hosts for this podcast are James Parkyn and me François Doyon La Rochelle, both portfolio managers with PWL Capital.
In this episode, we will review our team’s new ebook authored by James Parkyn entitled “The New Retirement”.
Enjoy!
2) The PDL eBook Guide to the New Retirement:
Francois Doyon La Rochelle: Hello, James! How are you today?
James Parkyn: I’m very good, Francois, and how are you?
Francois Doyon La Rochelle: I’m good. Thank you.
I will start this off for our Listeners. In the spring of 2022, we published two Podcasts #39 and #40 on the Topic of the New Retirement. These Episodes were and continue to be very popular with clients and prospective clients. Many asked us if we could produce this in the form of an eBook. Today we are proud to present our latest eBook called the “New Retirement”. As our regular Listeners know, we have produced many eBooks in the last few years on different topics. All are available on the Capital Topics website and our PWL Capital Team Page. So, James what do you want to share with our Listeners today?
James Parkyn: Thank you for that Introduction Francois. This new eBook is something we are very proud of. Like all our other eBooks it is designed to be accessible. It summarizes a huge topic in 12 pages. As you know, most people do not want to read a big book. They want an easy-to-follow guide that gets straight to the point and can be used as a toolbox in discussions with their spouses.
Francois Doyon La Rochelle: James the demographic reality is that Canadians are retiring in greater numbers than ever before, and once retired, they are living longer than previous generations. There have been many books written on this topic, what does your eBook bring to the new table?
James Parkyn: Francois, the real benefit to me for readers is that it is comprehensive yet easy to read. It covers both the financial aspects and more importantly the psychological challenges of retiring. The psychological side is critically important. It’s not just their huge numbers and longevity that set baby boomer retirees apart. It’s also their aspiration to create active, purposeful, connected lives during their retirement.
Francois Doyon La Rochelle: But the reality for many people is the challenge of transitioning from work to retirement. They’re troubled by the sense that their best years are behind them, and they struggle to find meaning and purpose in this new stage of their lives.
James Parkyn: That is so true. With my over 25 years of experience, I’ve seen that many times. Many retirees even have trouble admitting they’re retired. Ageism and negative stereotypes can make the mental adjustment much harder. In the eBook, we cover navigating the challenges of Retirement and it mainly involves three things:
- A psychological transition
- A focus on health and well-being
- A new stage for couples
Francois Doyon La Rochelle: Exactly! Couples often discuss the big picture like finances, travel, and housing arrangements. But too many couples neglect to talk about how they’re going to relate on a day-to-day basis.
James Parkyn: Retirement is a major transition for anyone. For couples, spending more time together and changing lifestyle patterns can create conflict and stress in a relationship. Remember the old joke “I married my husband for better or worse but not for lunch!”. The key is to develop a new mindset.
Francois Doyon La Rochelle: I agree James. So how to do it: Throughout our working lives, retirement is an abstract destination. We prepare for it by putting money away in our RRSPs, TFSAs, and taxable accounts. We’re focused on maximizing the size of our nest egg with only vague ideas about how we’ll spend two, three, or even four decades in retirement. The result can be a disconnect between what we believe is going to be important in retirement and the experience.
James Parkyn: This is why François It is so important to develop a new mindset about retirement. The Globe and Mail’s personal finance columnist Rob Carrick asked his retired readers to share their biggest regret in retirement. Carrick’s overall conclusion? Money doesn’t buy retirement happiness. Of those who gave their greatest regret, just 5% said it was failing to save enough for retirement. Instead, social factors topped the list. The leading regrets included failing to work harder on connections with family, friends, and community, and not thinking more about how to fill their days in retirement.
Francois Doyon La Rochelle: That makes total sense to me. So, what should people plan for to avoid regrets?
James Parkyn: Well, François, they need to develop a vision for their retirement. Flipping the switch mentally from working to retirement will be difficult. In helping our clients make the transition, we’ve found the best approach is to help them create a vision of how they want their retirement to unfold. That requires some deep thinking about who they are as a person and what they want to accomplish in the years ahead. Their spouse, friends, and advisors can all help.
Francois Doyon La Rochelle: And for that purpose, in the eBook, there is a very helpful checklist to help the reader create their vision of a successful retirement. I find this page useful to get started. Why don’t you share some details about it James?
James Parkyn: Will do François. The checklist has eight items on it:
- WHEN TO RETIRE: At what age do you want to retire? Will you continue to work part-time? Do you want to explore new types of work?
- WHERE TO LIVE: Will you stay in your home? Or do you want to downsize and/or move to a quieter, less expensive, or warmer climate?
- YOUR HEALTH: Do you currently have serious health problems? How will you maintain your health? Do you have access to a team of health professionals to support you?
- YOUR RELATIONSHIPS: How will you maintain and improve your connections with your spouse, children, grandchildren, and friends? What are opportunities to deepen your connections? Where are flashpoints for conflict?
- YOUR ACTIVITIES: How will you fill your days? Which sports and exercise activities do you enjoy? How about hobbies, educational pursuits, and volunteering?
- OTHER CLAIMS ON YOUR TIME: This is a really big one for our highly successful clients. What demands will be placed on your time and energy? Do you manage the finances and taxes? What are your household chores? How many volunteer commitments are you going to make?
- COPING WITH WORRY: How will you manage day-to-day stress and bigger problems? Will an exercise program or spiritual practice help? Can you talk to family or friends or get access to a therapist if needed?
- GIVING BACK: How will you contribute your talents, knowledge, and resources to making your community and the world a better place now and in the future?
Francois Doyon La Rochelle: That’s a great list. The next topic you cover in the eBook is 4 things you may miss about work. So, what are they?
James Parkyn: Well, François, first of is a regular pay cheque—Employees are used to seeing their pay arrive regularly in their bank account. In retirement, cash flow is often irregular as you draw savings.
Francois Doyon La Rochelle: We help our clients with this one by offering clients to deposit each month in their bank account the amount required for their monthly expenses. This simplifies their lives, and they get used to the security of having that monthly transfer. What we see with our clients, is that this helps them also to stay within budget and respect their long-term financial plan.
James Parkyn: François, we see that all the time. Many clients take pride in sticking to their budget.The second thing you’ll miss about work is the social interaction with your colleagues—Social interaction is a big part of working life. No longer seeing work friends can leave a big hole in your life.
Francois Doyon La Rochelle: That’s so important. That’s why retirees need to stay in touch with their closest friends from work, but not by showing up at the office. Reach out to other friends and find activities that allow you to meet new people.
James Parkyn: The third thing you’ll miss is your work identity—The best example in this case is how often people ask you during retirement. “What do you do with your time?”. This can be shocking if you don’t have a clear vision of what retirement is about and that brings home the realization of how important your work identity is to your self-image.
Francois Doyon La Rochelle: This can be a challenge for many retirees, but we have a way to help them resolve it. We encourage them to develop an elevator speech. This is a really basic concept taught in business sales training, and it applies brilliantly to retirees. An elevator speech is a brief description of what you’re doing now to tell other people how rich your life is in retirement. It also has the benefit of reinforcing your new identity in your mind.
James Parkyn: So now for the fourth thing you’ll miss about work are the perks. You may have taken for granted some of the advantages of working, including such things as access to IT support. It always amazes us when people in retirement tell us “How am I going to manage my technology and the challenge of cyber security protection?”.
Francois Doyon La Rochelle: Indeed James. This is why many set up a well-organized home office. Another thing you haven’t mentioned James is that many retirees miss the benefits package, including health and medical insurance. For this, you can also buy supplementary health insurance to replace your work benefits.
James Parkyn: The next big topic we tackle in this eBook is Financing your retirement. Once you’ve defined a vision for your retirement, you’ll be ready to address the million-dollar question: How am I going to pay for achieving that vision without running out of money?
Francois Doyon La Rochelle: This is easier said than done. After decades of saving money for retirement, switching gears to spending your savings can trigger a fear response in your brain. It even leads some people to keep on working long after the age when they can afford to retire.
James Parkyn: A 2023 survey by the major global insurance company Allianz Life, found that 61% of Americans were more afraid of outliving their money than they were of dying.
Francois Doyon La Rochelle: That to me is amazing. When it comes to spending your savings, you’re faced with a real dilemma. Spend too much and you run out of money in old age; spend too little and you short-change your retirement and leave behind an unintentional large inheritance.
James Parkyn: Well said François. We call this the “decumulation” phase of your assets and it’s notoriously complex. Indeed, Nobel Prize-winning economist William Sharpe called it: “the nastiest, hardest problem in finance.” To tackle this challenge, you have to consider two closely interconnected questions. First, how much income will you need in retirement? And second, how much can you safely withdraw from my savings each year?
Francois Doyon La Rochelle: Let’s take a closer look at these critical questions for our listeners. A common rule of thumb is you should aim for 70% of your pre-retirement income before taxes to maintain your lifestyle in retirement. But is this a fair estimate of your income needs?
James Parkyn: The answer François is often not. Many people assume their day-to-day expenses will drop substantially when they stop working because they no longer have to pay for such items as lunch at the food court, work clothes, or transportation to their jobs. However, while those costs will disappear, research shows that day-to-day spending doesn’t drop that much and that other expenses can increase, such as vacations, and leisure activities.
Francois Doyon La Rochelle: Exactly right James. We can think of no longer having to make mortgage payments, providing financial support to children or the big ones, and no longer needing to save for retirement. These are the really big expenses that make a difference. Also, because you have less income, you will likely be taxed at a lower rate. These decreases in spending are even more significant for high-income earners.
James Parkyn: So, what’s the bottom line for our listeners? Although some will want 70% or more of their pre-retirement income, leading Canadian retirement experts Malcolm Hamilton and Frederick Vettese say most people will do just fine with less than 70%. That’s reassuring, but do you have enough money saved to provide you with the income you want and need? An important part of the answer will depend on your “burn rate,” how much money you spend each year, and whether it’s sustainable. This leads us to the next topic in our eBook, What’s a safe withdrawal rate?
Francois Doyon La Rochelle: The starting point to answer the questions is the 4% rule. It states you can safely spend 4% of your nest egg in the first year of retirement and then adjust the dollar amount for inflation each year for the rest of your life with minimal risk of running out of money.
James Parkyn: That rule may work for many retirees. For others, a better option is to take a flexible approach, adjusting their spending and withdrawals in response to portfolio performance, life events, and evolving goals.
Francois Doyon La Rochelle: The reality is that many people spend far less than they could in retirement. An Employee Benefit Research Institute study found that people in the United States who retired with more than $500,000 in savings on average still had 88% of it left 20 years after retirement. Even individuals with less than $200,000 in non-housing assets immediately after retirement still had 75% of those savings 18 years later.
James Parkyn: We see that a lot with clients. I should also highlight that capital markets over the last 20 years have been favorable to investors. For many people, spending more, not less, is the challenge! Your focus shouldn’t be on a magical safe withdrawal rate. Rather, review your portfolio performance with your financial advisor at least once a year and retirement income projections regularly, especially after bad years in the markets. Then, you can adjust your budget as necessary.
Francois Doyon La Rochelle: Another really important question about retirement income planning, is when should you take your pension from The Canada Pension Plan or QPP for Quebec residents? As many people know, you can increase your CPP or QPP pension by delaying taking it after age 65.
James Parkyn: François, I would add that many pension experts and financial planners recommend that people should wait. They should wait to take it at a later age, like age 70. The reasoning behind this is the peace of mind that comes from having a larger stream of guaranteed income, that is fully indexed to inflation. This helps to manage longevity risk. This recommendation is often accompanied by the recommendation of drawing down your RRSP savings before age 72. Many retirees with large RRSPs are at risk of getting their old age security clawed back. This analysis generally requires the help of a financial advisor to make an informed decision.
Francois Doyon La Rochelle: This brings us to another important factor that requires consideration in retirement planning, and that’s the idea that spending tends to decrease as we get older until our final years.
James Parkyn: This François is really about the tendency for retirees to spend less as they grow older. This tendency should be part of your retirement planning to ensure you get the maximum benefit from your savings. In the eBook, we highlight that retirement can be broken out into three distinct phases:
- Go-Go years: This is typically the first 10 to 15 years of retirement.
- Slow-Go years: These are typically the years from about 75 to 85. But that can vary. For some of our clients, the slow-go years start at age 85.
- No-Go years: This generally starts by the time you’re around 85.
Francois Doyon La Rochelle: Let’s start with the Go-Go years: For many people, this is prime time for travel, hobbies, fitness activities, and socializing. You might want to splurge on a new car or some project you’ve always wanted to take on. These will likely be among the most expensive years of your retirement.
James Parkyn: The next phase is the Slow-Go years. This is when you may still want to travel and enjoy leisure activities, but you will typically be scaling back. It might also be time to downsize from the family home or sell one of your cars. For these reasons, you’ll be spending less money than during the go-go years.
Francois Doyon La Rochelle: And finally, the No-Go years, when travel and other leisure activities will become more challenging, and you may need to spend more on health care.
James Parkyn: So the next topic the eBook tackles is putting together your retirement financial plan. Ideally, you will start the process years before you stop working, but it’s never too late to get started.
Francois Doyon La Rochelle: James, what does the eBook say about what you need to consider when putting your retirement financial plan together?
James Parkyn: In the eBook, we highlight six components of a sound retirement financial plan:
- Review your retirement goals
- Estimate monthly spending
- Review your income sources
- Plan big-ticket expenses
- Think about estate planning, and finally
- Make your plan
Francois Doyon La Rochelle: Once you get a view of your expenses and income in retirement, it’s always a good idea to get the advice of a qualified financial planner to create your retirement plan with you. They will use software to make financial projections based on your income sources, spending needs, and assumptions about future investment returns, inflation, and life expectancy, etc.
James Parkyn: Now that you have your retirement financial plan, how do you monitor things regularly? For this, the eBook highlights that it’s important to meet with your financial planning advisor at least once a year to review your retirement financial plan and ensure it’s on track. In our team, we call the process Retirement Income Optimization.
Francois Doyon La Rochelle: This is a core part of our service to our clients. Is your portfolio tax optimized, including capital gains and losses, RRSP/RRIF withdrawals, dividends from investment holding companies, and the possibility of Old Age Security pension clawbacks?
James Parkyn: In this annual meeting, we also review your burn rate. Specifically, we discuss how much you withdrew from your portfolio as a percentage of its total value. We also discussed, will this burn rate be stable going forward or do you expect it to increase over time?
Francois Doyon La Rochelle: Having the right tax strategy can save you thousands of dollars over the course of your retirement. Here, a financial advisor collaborating with your tax advisor can give you valuable guidance.
James Parkyn: So François, let’s wrap up the review of our eBook, the New Retirement. The next phase of your life can be a wonderful time, but you shouldn’t underestimate the psychological and financial challenges of transitioning from work to retirement. These challenges range from finding new meaning and purpose in your life to switching from many years of saving money to spending it.
Francois Doyon La Rochelle: I would add James that if you’re planning for retirement or are newly retired, you’ve probably already realized that success in this new stage of your life is going to require more than just financial security. It will also require that you make wise decisions to find meaning, foster deep relationships, and give yourself the best chances of remaining healthy and active throughout your retirement.
3) Conclusion:
Francois Doyon La Rochelle: Thank you, James Parkyn for sharing your expertise and your knowledge again today.
James Parkyn: My pleasure. Francois.
Francois Doyon La Rochelle: That’s it for episode #62 of Capital Topics!
Do not forget, if you would like to submit questions or suggestions for the show, please email us at: capitaltopics@pwlcapital.com
Also, if you like our podcast, please share it when with family and friends and if you have not subscribed to it, please do.
Again, thank you for tuning in and please join us for our next episode to be released on May 9th. In the meantime, make sure to consult the Capital Topics website for our latest blog posts.
See you soon.
Links to share:
– Episode 39: The Pre-Retiree Guide to the “New Retirement” – Part One — Capital Topics by James Parkyn & François Doyon La Rochelle
– Episode 40: The Pre-Retiree Guide to the “New Retirement” – Part Two — Capital Topics by James Parkyn & François Doyon La Rochelle