Cash Flow Planning – Building Confidence into Your Retirement Plan

by | Dec 20, 2018

When you think about retirement planning, your mind may start to fill with acronyms:

  • RRSP
  • RRIF
  • TFSA
  • LIRA
  • CPP
  • OAS

Just think: that’s only the Starter Pack of Financial Jargon.

It gets a whole lot worse.

You may think you’ll have to earn a Master’s Degree in personal finance to figure out how to make ends meet when you decide to pull the plug on your day job. Or you may have to hire a person who speaks that strange language all the time (but may not be all that well-versed in English…) in order to navigate the potentially stormy seas of retirement planning.

The whole thing can be more than a bit daunting. Maybe you’ll just ignore this mass of confusion and stay working. It’s probably easier than learning a whole new language or trying to navigate slippery numbers that change their shape and structure each time you look at them.

But, what if we gave you a better way to build confidence into your retirement plan, a way that is focused on what you need and what you want out of your retirement – in the language you speak?

What if we told you that the easiest way – and the best way – to build confidence in your retirement plan was to start with….cash flow planning? (We didn’t say – nor did we mean – “budget”)

You may not be surprised to hear this kind of thing from us. We’re the team who told you to start retirement planning by getting to know your values, so it’s pretty on-brand for us to talk about stickier, warmer, more personal things than withdrawal rate optimization.

As we wrote back then, it can be easy to think that you “should” start your retirement planning by answering questions like this:

  • When should I apply for Canada Pension Plan benefits to get the most out of them?
  • Should I think about deferring Old Age Security? Am I at risk of having it clawed back?
  • When should I convert my RRSP to an RRIF and when should I withdraw from it? How does that even work?
  • Should I take the lifetime benefit from my pension plan, or should I take the commuted value and manage it myself?
  • Will buying an annuity make sense for me, and – if so – when do I buy one and with what pot of money?

These are absolutely great questions – and they should be answered. Eventually. But they’re not the questions that will get you started on your retirement plan.

Instead of jumping right into your pensions or your investments with a goal of optimizing the withdrawals and the tax rates so that your numbers line up just right on your paperwork, we’d like you start somewhere else. We’d like you to start with you, and your spending.

Cash flow planning is the process of deciding what you want to spend money on, what you’re perfectly content to do without, and how to sort it all in such a way that you don’t have to make daily decisions (which is exhausting) in order to achieve great success. The structures developed through cash flow planning that will help you stay in your self-determined boundaries are essential to successful retirement planning – and they’re all based on the concept of muscle memory.

The concept of muscle memory is synonymous with motor learning; a form of procedural memory that involves committing a specific activity into memory through repetition. It’s all about forming habits, ones that become so natural that you don’t even have to consider them – and great habits lead to great success.

You can create a repeatable process that sets the boundaries around your retirement spending while allowing you to maintain, observe, and adjust those boundaries over time.

Think about the very first time you drove a car. There were so many different things to pay attention to at the same time! How hard you leaned into that gas pedal… listening to the motor while you watched the road, switched gears, turned on windshield wipers, and signaled to fellow drivers – checking your blind spot all the while. It was overwhelming at first, wasn’t it?

But the last time you drove your car, you probably didn’t think much about it at all. Your brain could pay attention to the road AND follow the directions to your destination. You could stay in your lane AND watch your blind spot. If someone cut you off, you were able to react automatically (we mean to stay out of harm’s way, not to roll into a blind rage!), because your body knew how to steer you out of danger, without having to run through a step-by-step list taped to your dashboard. You may have arrived at your destination without even retaining a memory of the drive itself.

This is the magic of muscle memory. We want you to have the kind of confidence in your retirement plan that you have in the way you complete tasks that were once highly skilled but are now old friends, easily drawn from your back pocket when you’re ready to use them.

Your cash flow plan, carefully created and designed around what is most important to you, is exactly where the rubber meets the road in your retirement. Start here first, and those moments of jargon-fuelled frustration will become distant memories fading in your rearview mirror.