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Joel Attis

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I had an individual drop by to see me a few weeks ago. We'll call him Bill. Bill wanted to know how much he would have to set aside for savings in order to retire at age 60. He told me that he currently earns $90,000 a year, and he wants an income of $60,000 per year in retirement. He has a non-employed wife and two grown children. His house, which he valued at $250,000, has a $150,000 mortgage.

Bill was a bright, charming fellow -- but said he never had the inclination to save for retirement until now, and thus has no savings whatsoever. Are you getting the picture here? Bill is 55 years old, a mere five years away from his desired retirement. I explained to Bill, as kindly and compassionately as possible, that the greatest financial planner in the world, let alone the greatest magician in the world, could not possibly take him from zero to $1,000,000 in five years. Bill was crushed.

Of course there was no Bill who dropped into my office. But there are a lot of Bill's out there. Are you one? Will you become one? Will you be crushed?

Whatever your age, it is never too soon to look ahead and begin giving thought to your retirement. When the time finally comes, if you've done the proper planning, the transition will be smooth and you will feel comfortable and secure about it. If not, well then, you may be crushed.

Today, more than ever, as the society we live in becomes more complex and demanding, and as we live longer lives, planning for retirement is a necessity. You must plan ahead by setting goals and deciding how they will be met. The good news is that you don't have to do this alone. There are many highly qualified financial advisors available to assist you and guide you through the process. And let's dispel one myth here and now. You don't have to have a wheelbarrow full of cash to begin a savings plan. The whole idea of a savings plan is to help you build that wheelbarrow full of cash by regular, consistent, small, bite-size installments over the long term.

Retirement planning also means getting ready for a lifestyle change as well as a changing financial picture.

You may be faced with some hard choices. If it has been difficult to accumulate the essential funds necessary to enjoy a truly "worry-free" retirement, you may find yourself choosing between dining out more frequently or preparing more meals at home. You may find yourself having to choose whether to put your spouse, the man or woman with whom you've spent the last 50 years, into a "no-frills" nursing home or a nursing home with big bay windows, a view of the ocean and a private sitter.

Many retirees find themselves balancing between having a sufficient lifestyle and lacking some of the comforts that make life easier. In addition, you may find yourself considering just how much or how little you want to leave to your children. These difficult decisions can be made easier, with proper planning, savings, and investing done ahead of time.

Retirement planning is like a jigsaw puzzle with many pieces. Once you fit together all of the interlocking pieces of the puzzle, you will be able to set up the best retirement plan for your specific needs.

The following are four important pieces of the retirement planning puzzle:

* Public benefits -- Most individuals are entitled to receive government-provided benefits such as Canada Pension Plan (CPP) -- based on how long they worked, how much income they have earned and at what age they choose to retire. Also, all Canadians are entitled to Old Age Security (OAS) at age 65, subject to an income-tested clawback. Once one's taxable income reaches $64,718, OAS benefits begin to be clawed-back, until an income of approximately $106,000, when the benefit is fully clawed-back. Any which way, in almost every case, public benefits alone will not be enough to provide a comfortable retirement income.

* Company-sponsored pension plans -- An employer may fund a benefit that is taken as a monthly income by employees at retirement. A key factor in determining the amount of income you will receive is the age at which you choose to retire. Today, the vast preponderance of these plans are defined contribution plans, as opposed to defined benefit plans -- which essentially means there's more work and more risk on the employee's part than ever before. Of course many employees do not have the benefit of either a defined benefit or a defined contribution plan available to them.

* Registered savings plans -- The government, in its wisdom (some would say that the word 'government' and the word 'wisdom' do not belong in the same sentence), encourages Canadians to save for retirement by offering some compelling tax benefits. Registered retirement savings plans (RRSPs) are a crucial component to a retirement savings plan. The contribution limit for 2008 is the lesser of 18 per cent of an individual's earned income for the year or $20,000.

There are two great tax benefits -- first, the amount contributed to an RRSP is deducted from taxable income for the year, meaning that the contributor will enjoy an immediate tax savings, upon filing (equal to the amount of the contribution times the contributor's marginal tax rate, which is the tax rate the taxpayer is subject to on the last dollar earned in the particular tax year). Let's look at an example. At a $90,000 salary, Bill is in the 42.52 per cent tax bracket. If he were to invest $20,000 into an RRSP, his taxes for that year would be reduced by $8,504 ($20,000 multiplied by 42.52 per cent). Essentially, his $20,000 investment cost him $11,496 after tax ($20,000 -- $8,504).

Secondly, investments within an RRSP (whether they are in the form of GICs, mutual funds, segregated funds, stocks, bonds, etc.), enjoy tax-deferred growth until such time as the contributor withdraws the funds from the plan (typically in retirement), when the withdrawn funds will be taxed as normal income. This tax-deferral is a powerful tool in building wealth for retirement. The younger one is, the more powerful the tool.

* Your personal savings -- A disciplined savings program, in addition to any other retirement planning, will help you accumulate and supplement retirement wealth.

Your first step of affirmative action is to assemble the pieces of your financial puzzle to determine if they are sufficient to provide a comfortable retirement. If so, keep up the good work. Set your sights on the retirement of your dreams. Early planning can help you avoid having to make financial sacrifices during your retirement. If you currently expect a funding shortfall, develop long-term strategies to meet your goals. Having a competent financial advisor whom you respect and trust will literally make a world of difference to your retirement planning. The earlier you include him or her, the sooner you will be on the right path. The later you include a financial advisor -- well, consider Bill above.

Whether you are in your thirties, forties or fifties, now is the time to start planning for your retirement. If you are financially independent at retirement, it can become a time of new opportunities, a time to try a second career, to develop a new lifestyle or to pursue new dreams and goals.

Remember, although you may think of retirement as being a long way off, the day will come -- just like Christmas. And when it does, it always seems that it came much faster than you imagined. Time should not be wasted.

In the words of one of my favourite old time rockers, David Bowie, "time can change me, but I can't change time".

Make retirement your most stimulating, fulfilling time ever -- truly your golden years -- as opposed to a period of boredom, worry and disenchantment.

The take-away from this column -- visit a financial advisor today and begin the process of drafting a written financial plan to lead you to a happy and worry-free retirement.

* Joel Attis is a Financial Advisor with AttisCorp Financial Group, Inc. in Moncton. Mutual funds provided by Partners In Planning. Comments or questions may be submitted to joel@attiscorp.com, or he may be reached at 855-1155.