PETER DOLEZAL: Explore the benefits of a financial plan

An Investment Plan might not be enough to enjoy your retirement years.

Before the days of GPS, if we wanted to drive to Miami or elsewhere, by the shortest possible route, we did not hesitate to meticulously plan the trip, to be sure we achieved this key objective.

Should our retirement planning be any different? Should it be a hit and miss exercise unfolding unpredictably over the years leading to retirement? Or can we, in fact design a “roadmap” leading to our financial comfort and security in retirement?

This essential “roadmap” is a comprehensive Financial Plan. Yet, only some 20 per cent of Canadians have even a rudimentary Plan.

Studies have shown that those with a Financial Plan are far more likely to achieve their retirement objectives than those without. Having specific financial objectives, complete with details of how to achieve them, is far more likely to be successful than simply hoping for a great retirement.

Many of us believe our Investment Plan is our Financial Plan.

It is not.

While an Investment Plan is an important element, it is only one of many. In fact, designing an Investment Plan should be undertaken only after many other elements have meticulously been sorted out — providing a suitable framework for the investment structure. Too often, the “investment cart” is put before the broader “planning horse.”

What are the essential elements of a solid Financial Plan? A typical framework would include:

• Personal financial and related objectives;

• Assumptions upon which the Plan will be built;

• Investment Policy Statement detailing risk tolerance, asset allocation, etc;

• Details of Net Worth (Assets, minus Liabilities);

• Current Cash Flow (Disposable Income, less Expenses);

• Future changes in Cash Flow – for example, at ages 65 and 72;

• Debt liquidation strategy;

• Optimal utilization of RRSP and TFSA eligibilities;

• Real Estate strategies;

• Tax-minimization strategies;

• Life insurance strategies;

• Other personal issues, specific to the individual or couple.

Only after each element has carefully been addressed, honed, and integrated as a building block, can a meaningful Investment Plan be designed, implemented and optimized to one’s specific circumstances.

It is never too late to develop a Financial Plan, even once retired. However, the earlier in life it is created, the more achievable and beneficial the results. A Financial Plan for retirees would focus more on wealth-preservation, rather than wealth-creation.

Developing a sound Financial Plan could be the best-return-on-your-time investment you are likely ever to undertake. An Investment Plan which fails to fully consider all elements of your Financial Plan as its framework, is much less likely to deliver the results you need for a comfortable, financially stress-free retirement.

 

A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his most recent, The SMART CANADIAN WEALTH-BUILDER.