The retirement homestretch: A 5-year checklist

If retirement is on the horizon, but it feels like there's still so much to do, feel free to take a breath. This checklist may help alleviate some of your worries.

When you're five years away from retirement, will you feel like you're on the last leg of a marathon, hearing cheers and applause? Or like the obstacle course you've been on for decades is getting harder and more complicated?

Getting closer to retirement can be an exciting time, but it can come with questions too. 

Even if you've been planning, saving and investing diligently for years, right now — five years out — may be a good time to brush off your plan and ensure the ideas you had about retirement years ago are still valid.

"People should not let retirement just happen," says Tannis Dawson, a High-Net-Worth Planner with TD Wealth.

"As you get closer to your retirement date, it's important to have a good hard look at your plans and outlook to ensure you're headed where you want to be. Meeting with your Financial Planner or advisor is crucial because they can anticipate many pitfalls — tax issues for instance — that you may not be aware of."

Here’s something else to consider: Large changes in our lives usher in stress and uncertainty. One study reported that retirement can increase the probability of suffering from clinical depression by as much as 40%¹. The report suggests that, while work stresses can decrease in retirement, "the reduced social contact may have a detrimental longer-term impact." 

This is why it can be important to take time to prepare for retirement, both mentally and financially. Consider the smartest way to withdraw the funds you've been accumulating. But also remember to plan for your physical well-being. It may not come as a surprise, but research shows that pre-retirees in good physical health had higher life satisfaction scores heading into retirement than those with sub-optimal health². 

We spoke to both Dawson and physician Dr. Adam Stewart to assemble a 5-year checklist to help you transition from working life to retirement. Whether you are planning to retire early or keep working a few extra years, here's a worksheet you should keep handy during your pre-retirement phase.

The change from accumulating wealth to preparing for its eventual withdrawal is a crucial time of transition, says Dawson. When you’re five years out, you should concentrate on getting your financial house in order so that you can ease into retirement seamlessly. The top concern? Ensuring your savings and investments can provide a comfortable lifestyle until the end of your life. If you only have vague notions of what your retirement lifestyle will be, now's the time to put price tags on everything from accommodations, travel and activities to healthcare. Here's a handy five-year finance checklist:

- Revisit your retirement plan 
Ensure you have a comprehensive retirement plan that encompasses you and your spouse's financial and lifestyle plans from now until you are 95.

- Eliminate any debt
Debt can be a drag on cash flow in retirement. If you can't eliminate it entirely, try to manage it so that it doesn't inhibit your retirement plans.

- Revisit corporate pensions
What will you receive, when can you take it and what options and benefits are available?

- Check health benefits
Investigate what you have and what you expect you will need as you grow older.

- Reallocate investments
You may need to balance the need to preserve your wealth vs. the need to keep it growing for the length of your retirement.

- Calculate your retirement "cheque" 
Is it a mixture of pension, RRSP withdrawals, CPP and other investments? Consider which accounts may be best to withdraw from first.

While taxes are always an important concern, Dawson cautions people not to stress too much about managing tax obligations in retirement. While most financial moves will impact your tax situation in some way, a tax strategy should ultimately complement your retirement plan, not drive it. The primary issue for many will be deciding which income sources to withdraw from first — pensions, registered and unregistered funds or income producing properties? The next big concern will be managing the tax implications of passing your wealth on to the next generation. Here is a five-year tax checklist:

- Manage lump sum payments
If you receive a severance package or decide to take the lump sum commuted value of your pension prior to retirement, for example, there may be methods to manage the tax impact of this income.

- Investigate tax-advantaged investments 
Return of Capital funds (ROCs), for example, could help manage cash flow, taxable income earned each year and help to pay tax on any capital gains. An advisor can help you understand what's available.

- Calculate the impact of CPP and OAS
Delaying your start date can bring advantages, but you'll want to know of any tax implications ahead of time.

- Revisit your principal residence exemption
If you have multiple properties or are thinking of downsizing, there may be ways to mitigate the associated taxes.

- Consider other options
A trust or other strategy could help your family offset capital gains taxes if you choose to pass property down a generation.

Dawson says an Estate Plan is much more than boring paperwork. Rather, these critical documents are often the primary means to convey your wishes and intentions after you die. That includes how you wish your loved ones to be treated as heirs to your estate, as well as any charitable organizations and causes that are close to your heart. Creating or updating your Estate Plan can also be a time for some honest decisions about what will work best for every member of the family. For instance, you may want to consider a trust as a way to manage probate fees and ensure privacy around your intentions, but also a tool for managing funds for others in your absence. Here's your five-year Estate Plan checklist:

- Update your Will and Power of Attorney (POA) 
Ensure both continue to reflect your wishes and intentions.

- Consider any dependents
Do you have children or grandchildren you'd like to provide for? A trust could be a way to manage and protect funds for them.

- Confirm an appropriate executor
Is the person you appointed still right for the role? If not, find one that is. It's also important that the executor (or "liquidator" as it's called in Quebec) is a Canadian resident to avoid logistics and administration problems.

- Review large charitable donations
Decide whether it's better to make contributions before you die or via your Will.

- Consider a Henson Trust for dependents with disabilities
If an adult with a disability will need ongoing financial support after your death, you may want to consider doing the research now as it needs to be set up in your Will.

Generations ago, retirement was a period when you looked after yourself and your spouse, and took whatever support you could from family as you aged gracefully. With changes to employment pensions, longevity and the high cost of living, however, many retirees may be caring for their own parents as well as financially assisting their adult children. Dawson says it can be a good idea to start creating a strategy now to see how it might impact your retirement plan. Here's your five-year family checklist:

- Talk to your family
Sit down with your family and talk openly about your retirement. Take the time to ensure everyone is clear about the decisions you are making and that they have been documented properly in your Estate Plan.

- Think about financial support
Consider how much you may want to give to family vs. set aside for your own healthcare costs in your declining years.

- Check in on your parents
If you are caring for an elderly parent, consider the future costs of healthcare and whether their Will and Estate Plan documents are up to date.

- Support your children
If you'd still like to help your children financially, you can think about the best way to do so — loans, gifts or promissory notes.

- Consider what could go wrong
If you have children from a second marriage (or other complicated familial obligations) speak openly about your plans could head off future acrimony.

Your financial health isn't the only thing that deserves attention. According to Dr. Adam Stewart, an Ontario-based physician, the "transition to retirement can be difficult for some people if they're used to being busy. For many people, their identity is associated with what their job is, and they can be lost when they suddenly find they don't have enough to do." He recommends anyone struggling with these feelings see a mental health practitioner. Dr. Stewart also emphasizes quality of life in retirement over pure longevity. While we should all strive to be fit and eat well, it’s important to recognize that no one is perfect. He encourages everyone to visit their doctor regularly and take a proactive approach to their physical health. More generally, Dr. Stewart offers these health guidelines as you approach your five-year checklist:

- Eliminate unhealthy habits
Smoking, drugs and excessive alcohol consumption are among the top sources of health problems. Addictive habits aren't easy to shed: Get help if you need it. 

- Add regular exercise and nutritional food
A dietician at your local health centre can suggest eating habits that will benefit you in the long-term. 

- Get tested
Early screening can be one of the most effective methods of detecting age-related diseases and ailments, including high blood pressure and cholesterol, diabetes, colon cancer and osteoporosis. For women, it’s important to get regular pap tests and mammograms, and for men, consider screening for prostate cancer and abdominal aortic aneurysms.

- Remember mental well-being
Maintain your relationships with your partner, family and friends to boost your mental and social health.

- Keep your brain active
Cognitive decline isn’t inevitable and there are ways to keep your mind sharp well into old age.

Just as Dr. Stewart recommends following the health advice of professionals to maintain your physical health, so too should you consider seeking the advice of a financial professional when it comes to your retirement. You don’t need to go it alone. A Financial Planner or advisor can help guide you through this transition and point out any planning gaps and opportunities along the way. If you haven't already, you can make an appointment today.