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5 Important Year End Retirement Planning Steps

 Dec 1, 2016 2:00 PM

5 Important Year End Retirement Planning Steps

So you want to retire early, do you? 

It may be possible--but the only way to know is to take an objective look at your current financial situation, understand the retirement lifestyle you want, then take the steps to improve the former and work towards the latter.

And what better time to do that than at the end or beginning of every year?

In my financial planning practice in Toronto, I encourage all my clients to meet with me at least once a year to evaluate their financial situation and make adjustments, if necessary, in their retirement planning.

Some need to start by paying down debt; others should set aside money for their childrenís education; and for others, saving diligently for retirement is the priority. 

5 Steps to Effective Retirement Planning

Hereís a summary of the financial planning topics I cover every year with my clients who are looking forward to retirement.

#1 Monthly Income and Expenses
The best-kept secret to living a comfortable retirement is to live within your means. If you have trouble paying your credit card in full every month, tally up your monthly expenses and subtract them from what you earn. If the bottom line is anywhere near zero, itís time to cut back on your spending.

#2 Net Worth
Your net worth is a simple calculation: assets minus liabilities. Before you retire, this number should increase every year. If not, or if your liabilities are more than your assets, focus on reducing debt before taking on other financial goals.

#3 Risk Management
When developing your retirement plan, itís important to protect your assets from unforeseen events such as an illness that prevents you from working, the sudden death of your familyís primary wage earner or an accident that leaves them disabled. 

If youíre not properly protected, any of these circumstances will wreak havoc on your financial resources. Make sure you have adequate life, critical illness and disability insurance. 

Most organizations provide employees with these important insurance products. But if youíre temporarily unemployed or own a business, youíll need to purchase them yourself.

#4 Retirement Goals
When you start thinking seriously about retirement, you likely already have a number of achievements under your belt ... as well as things you still want to achieve. These outstanding goalsówhether you want to travel the world, support a non-profit group in a bigger way or renovate your houseóhelp you set realistic financial objectives for your retirement nest egg.

#5 Investment Performance
Evaluate your investments once a year, including their annual return, as well as the fees you pay. Since youíre investing for the long term, donít focus too closely on daily, monthly or even quarterly fluctuations.

If your portfolio gave you a 3% return last year, how do you know if thatís good, bad or indifferent? I recommend comparing them to the appropriate benchmark or market index. For example, if you invest in Canadian equities, compare these investments to the annual return of the Toronto Stock Exchange.

Get Your Entire Financial House in Order

Whether you do it in December, the end of January, or the middle of July, discipline yourself to take stock of your financial situation once a year. And when you sit down for your review, donít just focus on investmentsómake sure your entire financial house is in order by living within your means, paying down debt, managing risk, and planning to reach your goals.




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