Finance Survey Results 2006
the past 12 months most MDs report their net
worth has grown
pressing personal finance problem is:
Saving for retirement
and your investments to fund it are your
most pressing money challenges
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Planning for retirement can be
a full-time job but good planning means you won't
have to keep your other full-time job into your retirement
years. "When it comes to retirement planning," laughs
Fred Bowie, CEO of Canada Retirement Information Centre,
"it's the lack of planning that's the biggest problem."
No big surprise retirement
planning isn't easy. In fact, it can be downright scary.
Once you start looking at all the arcane tax laws and
frighteningly large spreadsheets, feelings of abject
terror can set in. But don't despair. Here's how you
can recognize the five biggest retirement planning mistakes,
to learn what pitfalls you may encounter in your journey
and how to leap over them gracefully.
You don't know how much money you will need
It's an oldie but a goodie: "If you don't know where
you are going, you will never get there," says Ted Rechtshaffen,
the president and CEO of TriDelta Financial Partners.
The key to creating a successful retirement financial
plan, then, is to predict as accurately as possible
what your income and expenses will be over the rest
of your working life and through your retirement.
The trouble is that figuring all
that out is easier said than done. "People often ask
me if there's a magic number for retirement savings.
There isn't," Mr Rechtshaffen says. It all depends on
your savings, your pensions or other retirement income,
and your lifestyle and spending habits. The rule of
thumb, he explains, is that your expenses in retirement
will be about 70% of your expenses while you are working
and that amount will drop by 1% each year.
But Mr Rechtsheffen warns that
the rule of thumb may not make sense for some people,
like physicians. "Lots of people put off major trips
and other major expenses until they're retired," he
says, "and some people, depending on health and age,
spend more in the first few years of retirement than
they did while they were working."
Your money isn't working as hard for you as it could
Now that you've figured out what you'll need to live
comfortably during retirement, you have to figure out
how to make sure you will have that money available
for you when you need it.
The most important advice is: don't
neglect your RRSP. You shouldn't leave your RRSP money
tied up in GICs and bonds, especially if you are under
45; consider some stocks or stock market indices. The
US markets go up seven out of 10 years, on average,
so investing elsewhere is a wager that the market will
fall. The odds of winning that wager? Worse than the
odds of walking out of a casino with more chips in your
pocket than you had when you walked in, says Mr Rechtshaffen.
You could incorporate your business, but you still haven't
This one is simple: there are just two criteria you
need to consider in deciding whether or not to incorporate.
One, are you turning a net profit of more than $5,000
per year? And two, are you eligible for incorporation
in your province? If the answer to both those questions
is yes, then don't hesitate incorporate.
You're micromanaging yourself into madness
"As a group, doctors are much busier than most people,"
says Mr Rechtshaffen. "They really don't have a great
deal of time to do things other than work and spend
time with their families."
One of the biggest barriers to
effectively managing your own retirement planning is
keeping up with the vast quantity of new and changing
information about taxes, says Mr Bowie. For instance,
the Conservatives decided in the fall to allow seniors
to split pension income between them in order to take
advantage of more favourable tax brackets, and it's
still thought to be possible that a provision for income-splitting
for families could be included in the March 20 federal
budget. "You now must be aware of tax opportunities
as well as investment opportunities," says Mr Bowie.
You're not anticipating possible health problems
There are two different types of special health insurance
worth considering for your retirement: longterm care
insurance, and critical illness insurance. The two are
not mutually exclusive, but Mr Rechtshaffen says critical
illness may be more valuable than longterm care insurance
for many people. Even for those who do end up in longterm
care facilities, their costs may be offset by a pay-out
from critical illness insurance, which should cover
you for whatever caused the move to a long-term care
facility. Because it's often a better investment from
a cost-benefit perspective, says Mr Bowie, critical
illness insurance is particularly important for small
business owners, like many physicians.