My investment statement for March 31, 2020 came in the mail. I left it on the coffee table in my living room for a few days. Every day the envelope caught my eye, teasing me – daring me to open it. I know my portfolio is down. What I don’t know is how much and more importantly how this impacts my retirement lifestyle which I happen to truly enjoy.
Many retirees are rightfully concerned about how this downturn will affect their retirement life.
These retirees were building their retirement portfolios or were retired during the Great Recession of 2008. While twelve years ago seems like a long time to some, that downturn feels very fresh in many retiree’s minds. Many delayed their retirements or changed their lifestyles already once due to the loss of assets during that market correction. Finally, assets had recovered and were gaining new highs, allowing for a collective sigh of relief from those living off retirement portfolios.
And now, thanks to a global pandemic, here we go again.
What is a retiree supposed to do to feel on top of their plan? What adjustments should they do in this current environment?
Let me start by walking through how we, at Tall Oak Private Wealth, view retirement plans. We believe strongly that clients should not simply think of how much they will need to spend annually but rather very clearly, break up their spending in to three categories: their basic expenses, their discretionary expenses and their luxury expenses. We also help our client recognize that there are phases in retirement. Earlier phases of retirement tend to warrant greater spending, some middle phases can be some of the least spending-heavy phases of retirement. Spending is not linear.
Once spending can be better broken down into their categories and phases, we stress test the ability of our clients to maintain each category of spending. The plan does not necessarily need you to be able to maintain the same level of spending throughout retirement. My 92-year-old grandmother lives independently in an apartment in Scarborough, a neighbourhood in Toronto. Her spending is very minimal. She enjoys her lifestyle with only basic expenditures. Gone are the days that she travels the world – at 85 she left for six months, travelling all over Europe and Africa by herself visiting friends in different places of the world! Spending in retirement is not linear.
Our proprietary RETIREMENT VIEW approach allows our clients to understand the sustainability of their three different levels of spending. In this way, when the markets correct as they are now, we can assess the damage to all three levels. For most clients, this correction will not affect the probability of success regarding their basic and discretionary expenses. However, we may suggest that a client temporarily reduce their luxury expenses or risk permanently impairing their retirement lifestyle.
The most important thing that a retiree can do during these times is to have conversations with their financial advisors to understand the impact that continuing the current level of spending will have on their future ability to spend.
The answer retirees want to have answered is “will I be okay?”. Spending at the same level today may affect that answer and knowing whether to adjust and how to adjust spending when going through these turbulent times is critical to being ok.
We continually encourage this discussion with our retired clients or those approaching retirement and are prepared to continue to have these honest conversations with them over the next few months.
The views expressed in this commentary are those of Tall Oak Capital Advisors as at the date of publication and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice. Statistics, factual data and other information are from sources Tall Oak believes to be reliable but their accuracy cannot be guaranteed. This commentary is intended for distribution only in those jurisdictions where Tall Oak Capital Advisors are registered. Securities-related products and services are offered through Raymond James Correspondent Services Ltd., member Canadian Investor Protection Fund. Insurance products and services are offered through Gryphin Advantage Inc., which is not a member-Canadian Investor Protection Fund. This commentary may provide links to other Internet sites for the convenience of users. Tall Oak Capital Advisors is not responsible for the availability or content of these external sites, nor does Tall Oak Capital Advisors endorse, warrant or guarantee the products, services or information described or offered at these other Internet sites. Users cannot assume that the external sites will abide by the same Privacy Policy which Tall Oak Capital Advisors adheres to.
