Rebuilding the Ideal Retirement: A Case Study

by | Nov 16, 2020

Retirement often appears in people’s minds as an actual destination. In those cases, it can be treated like a permanent location where you will go – and stay – indefinitely. The truth is that this time in your life, just like any other, is a component of your journey, and will be impacted by change just as much (and sometimes even more) than any other period in your life. Set-it-and-forget-it is the hope, but not very often is it the reality – especially when it comes to things we cannot possibly control like market behaviours, economic changes, and global pandemics.  Each month throughout 2020, we’ve been sharing stories (greatly modified to protect privacy!) of the amazing people we’ve had the pleasure of working with. Our goal is to demonstrate that each individual, couple, family, and business is unique in its own way, and the advice that they receive is just as unique. A “sample” plan won’t give a great deal of insight into the quality of advice and support you would receive from Spring Plans (if you aren’t already a client), but these stories will give you a lot more insight.  So far this year, we’ve introduced you to:
  • Troy and Annie, with 2 children in elementary school, more month than money, and a renovation to contend with;
  • Zoe, who lost her husband at age 55 and wasn’t sure if she could fully retire on her own;
  • Baby and Johnny, busy professionals with two young children, great incomes but a deepening line of credit;
  • Terri, a single lady earning commission income that varied so much from month to month that she didn’t know how or when to save for retirement – or even annual taxes;
  • Isaiyah, who was frustrated with her portfolio management fees and wanted to start managing on her own;
  • Leela, a dual Canadian and U.S. citizen with corporations and money on both sides of the border;
  • Jesse and Tulip, parents and tech professionals with 10 years in Canada, trying to plan for the lifetime care of their disabled child while sending the other to university and saving for retirement;
  • Olivia, who sold her successful business, transitioned her career, and found herself far to busy to manage her own portfolio; and
  • Moira and her daughter Alexis, who decided that Moira needed to leave her frustrating job and we found that she didn’t need to work at all.
This month, we’d like you to meet….

Willow and Tara, Recent Retirees

When Willow and Tara retired together in their early 50s, they had everything they needed for a comfortable life, including an incredibly close relationship with their kids, strong cash-flow management skills, deep community ties, a history of practicing contentment no matter what their circumstances, a paid-for house, million-plus portfolio, a pension, and a permanent insurance policy meant for their kids, with a healthy cash surrender value that was paying their premiums for them.  Unlike many retirees who always intend to downsize but never get around to it, Willow and Tara even sold their house when their first grandchild was born, renting a condo in Calgary so they can live as close as possible to the baby without actually moving in.  They had done everything right: worked hard, saved their money, cultivated gratitude, and invested in their kids and community. They were looking forward to being both comfortable and generous for the rest of their lives.

Willow and Tara, 20 Years Later

Fast forward twenty years and some parts of the picture are the same: Willow and Tara are still close to their son Xander, daughter Anya, both sons-in-law, and grandchild Dawn. They still volunteer regularly with their local community centre, still manage their cash flow down to the penny, and are still practicing contentment. But twenty years, three market crashes, two great-on-paper but disastrous-in-real-life advisors, and two unindexed pensions have changed their retirement significantly.  When Willow and Tara first reached out to Spring, they were rattled by the long string of losses to their investments and ashamed about what they believed were their own poor choice of advisors. Tara’s pension wasn’t buying nearly as much as it used to, their savings were in cash, they were scared of spending, and terrified of becoming a burden on Xander and Anya. If that wasn’t enough, they had just received no good, very bad news: after years of lower than projected investment returns and no premium payments, their permanent life insurance policy had no more cash in it. Willow and Tara would have to find $600 per month out of an already bare-bones budget to keep it in force.  What we wanted to do was go back in time, give hard side-eye to the insurance advisor who told Tara and Willow to stop paying insurance premiums, build a sustainable retirement income plan, and monitor this retirement plan with them every year so that their course corrections could have happened sooner and felt smaller.  Despite any rumours you may have heard to the contrary, we’re not witches or vengeance demons, so time travel as a financial planning strategy was off the table, as was turning their past advisors into rats. 

Rebuilding Tara and Willow’s Retirement

Instead of looking to the past, we asked Tara and Willow to look to the future and identify their must-haves for the remainder of their lives. These included:
  • Enough money set aside to pay for acceptable end of life care independently;
  • Life insurance policy preserved as an inheritance for Xander and Anya; and
  • A minimum of $2,000 per month in today’s dollars from their portfolio for the rest of their lives, although more would be nice, plus an additional amount every year to make up for the declining buying power of Tara’s unindexed pension.
Although there were many places we could have started, we wanted to address Willow and Tara’s fear of making another “bad” investing decision first. Were they permanently scared out of the market and into strictly cash, GICs, or annuities? Could they cope with seeing the value of their investments change every day (within reason)?  Armed with a better understanding of their retirement risk tolerance, we turned to reviewing their tax profile so we could calculate how much they needed to withdraw before tax to create $2,000 after-tax, and – at the same time – squeeze the gap between their gross and net as much as possible by reducing income tax and making the absolute most of their government benefits.   Next, we set to work modelling all the different ways their portfolio could go wrong because of these withdrawals over the rest of their lives, depending on how their assets were broadly allocated and how those asset classes have performed in the past market and inflationary cycles. 

Sustainable Retirement

This work gave us two key pieces of information: 
  • How much of their portfolio had to be assigned to the job of guaranteeing acceptable end of life care, and
  • How much income the remaining assets could reliably provide without collapsing before Tara and Willow do (result: not enough).
And – because our job is to provide clients with the data and design thinking framework they need to make decisions, not to make the decisions for them – we presented the results of our work so that Tara and Willow could decide what they wanted most and what they were willing to trade-off to get it. Ultimately, this turned out to be asking Xander and Anya to split the cost of the insurance premium, keeping the policy in force and protecting their own inheritance.  Even though it wasn’t what they dreamed of in the first happy years of retirement, Tara and Willow were able to rebuild their ideal retirement on the strength of their close family relationships, graduate-level cash flow management, and our help guiding them through the data and available trade-offs.  This is the work we do with real, live clients every single day. Contact us to discuss how we can work the same kind of magic for you. 
Julia Chung
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