Should I Hire a Financial Planner Before I Retire?

I have worked with clients who started planning for retirement at 55 and others who called us 6 months before they intended to retire. There is not a particular age when everyone should hire a financial planner, and not everyone needs one. But there are advantages to getting advice before making retirement decisions that may be difficult to reverse.

How Many Years Before Retirement Should You Start Planning?

For many people, starting 5 to 10 years before retirement makes sense. There is time to see whether you are saving enough and whether adjustments to your anticipated retirement date or spending would make a difference. That does not mean you need a comprehensive plan at 50 if you are not expecting to retire until 65. Even planning a year before retirement can be useful.

The timing becomes more pressing when an important choice is approaching. An early retirement package may have an acceptance deadline, and a pension election can have lasting consequences. It is generally easier to consider the alternatives before you leave your job than after you have committed to a particular course of action.

Can I Afford to Retire?

People often seek retirement advice because something has prompted them to think more seriously about retiring. They might be wondering whether they can stop working at 60 rather than 65, or whether one spouse can retire while the other continues working.

Consider a couple who are both 60 and hope to retire at 63. Their initial projection suggests they may not have quite enough to support the retirement lifestyle they want. That does not necessarily mean retirement at 63 is off the table. They still have time to consider changes to their spending expectations or retirement date, rather than discovering the same shortfall once they have stopped working.

Retirement projections inevitably rely on assumptions. They can estimate how a plan may unfold over several decades, but nobody knows exactly what investment returns will be or how spending will change. I find projections most useful for comparing reasonable scenarios and seeing how sensitive the outcome is to different assumptions.

Retirement Is About More Than Picking a Date

I have rarely seen retirement hinge on one issue alone. Someone who retires at 62, for example, does not necessarily need to start Canada Pension Plan (CPP) benefits immediately. They could delay CPP and draw more from their savings in the meantime. Their Old Age Security (OAS) start date and RRSP withdrawals need to be considered as well, because the timing can affect taxable income and cash flow for years afterward.

A couple may be eligible to split certain pension income, and they may have opportunities to coordinate withdrawals between their accounts. There is no general rule that tells every retiree which source of income to use first.

If you are approaching retirement and unsure whether you are on track, you can learn more about our retirement planning services.

How Much Can You Afford to Spend in Retirement?

Figuring out how much you can afford to spend is one of the most useful outcomes of retirement planning. Someone with $1.5 million entirely in an RRSP has a different after-tax retirement outlook than someone with the same amount spread between RRSPs and TFSAs.

Consider two couples with identical investment portfolios. One has two defined benefit pensions and owns their home outright. The other has no pension income and still has a mortgage. Their investment balances are the same, but their retirement finances are quite different.

I am cautious about relying too heavily on retirement rules of thumb. A withdrawal rate can be a useful starting point, but it cannot tell a couple whether they should spend more while they are healthy or preserve more of their savings for later in life. The amount they can afford to spend is only one piece of the puzzle. When they want to spend the money matters too.

Tax Planning Changes When the Paycheque Stops

During someone's working years, most of their taxable income may come from employment. After retirement, they may have more control over when to take income from their savings. That can create opportunities, particularly during the years between leaving employment and starting required minimum withdrawals from a registered retirement income fund (RRIF).

I have seen retirees hesitate to withdraw money from an RRSP because they assume paying tax sooner must be a bad idea. But deferring tax for as long as possible is not necessarily the best strategy. In some circumstances, additional RRSP withdrawals in lower income years can reduce future RRIF balances and potentially lower lifetime taxes. Paying the least tax this year is not necessarily the same thing as paying the least tax over your retirement, which is why the analysis needs to look beyond a single tax return.

Your Investments Still Need to Support the Plan

Retirement changes the role of an investment portfolio. Instead of contributing regularly, you may soon be relying on withdrawals to cover living expenses. The portfolio's risk and expected cash needs should be considered alongside the retirement projection, although stopping work does not automatically mean an investor should become conservative.

If you manage your own investments, the plan can help you evaluate whether your asset allocation remains suitable. If you work with a portfolio manager, they can use the anticipated withdrawals and other information from the retirement plan when managing your investments.

What If I Already Have an Investment Advisor?

Many investment advisors and portfolio managers provide retirement planning alongside investment management. If your advisor already prepares detailed projections and helps you evaluate your retirement options, there may be little reason to hire another planner.

The amount of retirement planning an investment advisor provides can vary considerably. Some investors want more detailed retirement tax analysis while continuing to work with an investment professional they trust. Working with a financial planner does not necessarily mean changing investment advisors. The financial planner can focus on the retirement strategy while the investment professional continues managing the portfolio.

You May Not Need a Comprehensive Financial Plan

Not everyone approaching retirement needs a large planning engagement. Someone who already knows they can afford to retire and only wants advice about CPP timing may be better served by a focused financial consultation. The same could be true for someone who wants an independent review of a pension option.

Someone trying to coordinate their retirement date with a tax efficient withdrawal strategy may need more comprehensive analysis. The scope of the engagement should depend on the work involved, and there is little reason to pay for advice you are already receiving elsewhere.

Before committing to an engagement, it is reasonable to ask what work will be involved and how much financial planning costs. Two services described as retirement planning can involve very different levels of analysis.

If you are comparing professionals, our article on how to choose a retirement financial planner explains what to look for in the planning process.

Getting Advice Before You Retire

I have seen retirement planning give clients the confidence to retire sooner than expected, while others discover they should probably work longer. In some cases, the analysis simply confirms that the plan they already had was reasonable. That reassurance can have value too, particularly before someone resigns from their job.

At Objective Financial Partners, we provide fee-only, advice-only financial planning without managing investments or selling financial products. Clients can keep their existing investment advisor or continue managing their own portfolios.

If you are approaching retirement and want to evaluate your plans, you can learn more about our retirement planning services or book a complimentary introductory call. Depending on your circumstances, a focused consultation may be sufficient, while more complex situations may require a comprehensive retirement plan.

Frequently Asked Questions