5 moves to make 5 years before retirement

0:00Disclaimer, the following is for education and general information only. Not investment, legal, or tax advice, and not a recommendation to buy or sell anything. Investing involves risk, dividends are not guaranteed, and past performance does not predict the future. I may hold position in securities discuss and may trade at any time. Hey, what's up, Mario Moose? My for the moose on the loose. Welcome to retirement Friday. This week, Emilia sent me an email. She just subscribed to my newsletter, and she's like, Mike, I'm retiring in five years and I'm scared. She was scared about building her portfolio, having enough income, you know, five years before retirement. It is a period where it's scary, but exciting at the same time, right? You're really getting close to your retirement dreams, or you're a bit concerned that you may not live them because maybe sometimes things are not rolling the way you want.

1:04So today, I want to talk about five things, like five steps I would take if I was going to retire in five years. I've been given a lot of thoughts on that because I run this community at Retirement Loop, and we do have people that are five years before retirement up to five and ten years into retirement, right? Because it's a journey. It's a long trip. I see this as when I quit my job and I drove around in RV for a year. So you need some guidance, you need to have a plan, and of course, you need to adapt along the way. So the very first step before you do all this is really to take a piece of paper and do your personal balance sheet and identify your assets, identify your debts, identify your future income sources. Super important because before you know what you want to do at Retirement, you need to know where you're at, and if you have no clue, well, then you have a big problem because

2:05you will not be able to use that information that is the foundation of any financial projections or anything else, right? So lay out your assets, figure out how much you're going to receive at Retirement from your pension from your portfolio or at least get like how much you have invested in every places. Do a small, a small projection for the next five years, you may add some capital, go with like a six, seven percent return if you're full in equity. Balance portfolio would be around like four, five percent return, stuff like that. Then you can go into looking to your government pension. So CPP, OAS, so old age is security, CPP or QPP depending if you have like the Canadian pension plan or the Quebec pension plan, pretty similar, but I mean, you know, we go back, we have to do things differently and all other sources of income. That is the step number one.

3:05The step number two is to go between the question of how much will you spend at Retirement or something a lot easier because a lot of people, they came in my office when I was a financial planner and they were just like, Mike, I have no clue how much I'm going to spend at Retirement. That doesn't make any sense of this kind of question. So I'm like, okay, so let's go the other way around. How much can you spend at Retirement? So based on your balance sheet and your income sources, you'll know which kind of retirement budget you will have. And based on that, your retirement dreams, your bucket lists will likely be changed. Maybe you're going to have like a nice surprise and you will have more money than expected and then think, hey, I can do an extra trip or I can help my children by a house or give more money to charities or anything else, right? But you need to know where you have and then you need to do some financial projections. So it can tell you which kind of budget you will get. And at this stage, we're not optimizing anything.

4:08It's just down the road. But first, you need to just envision what your retirement will look like. Once you have this and then maybe you thought, hey, I thought I was be able to spend $75,000 or plus inflation at retirement and then you realize you're at like 50 and you're just like, wow, that hurts, that sucks, right? So the step three is to how can you bridge the gaps? And there are many gaps that you can, that you might want to bridge. Maybe you want to retire earlier because if you have an excess of money, maybe you can think, oh, on instead of spending more money at retirement, maybe I can retire like one or two years before earlier and spend even more time with the one I love. So that could be interesting. Another way that you can play around is of course to boost your income at retirement. And that, that goes along with like three simple things. There's, I mean, it's pure math at this point, right? So your returns and your investment returns will be determined

5:08by your asset allocation. Not if you're a great investor or not. I mean, yes, it will have a part if you keep on making mistakes. Of course, it's going to affect your investment returns. But if you go the simple route, you look at your asset allocation. The more you are geared toward equity, the more you can increase your expected return. And the more you don't want to have any volatility in your portfolio, I want to stick to preferred shares, to bonds, to GICs. Well, the lower your expected returns will be. So that's the first thing. The second thing is age at retirement. So if you retire at the age of 70, well, you need less money because you're going to be living less years as a retiree and you have more time to accumulate at the same time. But if you want it on the other way around, retire at the age of 50 or 55, well, then you better have a very solid plan because you're planning for several years. So on top of the returns, the age of retirement, and then finally, how much capital can you add?

6:09So you're five years before retirement. Maybe you can take a look at, oh, what if I take a RSP loan and then maximize the contribution and then get more money back? And maybe it would make sense, maybe it wouldn't. So those are the things that you need to take a look at. If you add a little bit more capital, maybe you're going to have a better retirement. You still have five years to capitalize on what you have. And that is a lot of time. It may not seem that way, but it's a lot of time because once you reach retirement, you're not done, right? You're still going to manage your portfolio and go throughout this journey for like 20, 30, maybe 40 years. So the retirement date is not the end. It's actually the beginning. And if you want to know more about how to set up your portfolio and how to approach retirement, we have a free newsletter at retirementloop.ca slash income where you can download our 20 income product guide.

7:10So we focus on all the income products that they are right now, giving you like a non bias analysis, the pros, the cons, what works, what doesn't, so you can make the best choice. So retirementloop.ca slash income. All right, so we did the balance sheet, like your financial situation. We looked at how much you can spend or how much you want to spend, depending on where, which side you are, how you can bridge gaps and get closer to your retirement goals. And finally, now that we have a clear picture of where we want to go, now it's time to take a look at your investment strategy. So before that was not that important. But now it's really important to identify what will be your asset allocation, what will be your stock, your sector allocation, are you going to go for ETFs, are you going to go for stocks or for like with an advisor with mutual funds or whatever else strategy. But what is really important here is there are many strategies that work.

8:10Okay, so my strategy, your strategy, your neighbor strategy, may all work and then you can all, we can all retire with different strategies and it's going to be fine. What's important is to be comfortable with it, is to understand the pros and the cons of your strategy. If you're just able to tell me about the good side, you're clueless. I'm sorry to tell you that, but you're completely clueless. You need to understand what's the downside as well. So you can continue in your retirement journey for the next 30 years with the same strategy. And you know what, you can actually keep the same strategy that you have right now, if it works for you, right? I've been having the same strategy for now 16 years and I have no intention to change it once I'm at retirement. The accumulation phase, the decumulation phase, everything can be the same and it works. And I've tried that several times and I've planned it for hundreds of clients. So don't tell me that I don't know what I'm talking about. It is working.

9:11And once you have that finally found this investment strategy, step number five, it's about time, right? Optimization. You cannot optimize something if you don't have a strong foundation, right? It's not like you cannot optimize your windows in your house to make sure that you have the best windows ever when the house is not even built, right? So you need to have a plan. You need to talk with the Arctic protect and then you know where to put your windows, which type of windows to take and then it will be optimized. So now is the time to look at the withdrawal sequence to try to delay guaranteed income such as the government benefits the Canadian pension plan and the old age security. If you delay them, you get a bonus and it's guaranteed income. So you may bridge the gap with withdrawing more money from your portfolio in the meantime. So that will also lower your taxes because tax optimization is super important. Once you know where you're at, where you're going and what's your strategy,

10:11then you can do tax optimization. So super important. And maybe once after all those optimizations, well, maybe you're gonna have like some bonuses. Maybe you can retire a year earlier or spend more money. So that's gonna be a lot of fun. But keep in mind, optimization, tax optimization, withdrawals of sequence, maximization of all your accounts is at the end of the process, not at the beginning. But five years before retirement, perfect timing to know how you're going to withdraw the money to fund your retirement. I know we're already past the 10 minute mark, but I want to leave you with some extra tip today. Five years before retirement, review your will, review your insurance, make sure that you have a home equity line of credit that on your house, preferably not used, so pay off your debt. But if you have this flexibility, it's a lot easier to qualify for a e-lock while you're working. So you want to have that flexibility and build a cash wedge to make sure that you're not stuck at selling shares or ETFs

11:14or any assets at a bad timing. The cash wedge will be the money that is there if you need to sell an asset, but it's not the right timing, you can have this money on the side. Sorry, Moose, that was a lot of thing in 11 minutes. I hope that you have enjoyed it. I'll see you in the comments on YouTube if you want to learn more about retirement planning. Subscribe to the free newsletter at retirementloop.ca slash income. So it's retirementloopLOP.ca slash income. We're gonna talk again on Monday we're starting a series about my top 10 largest holdings. And number one is gonna surprise you, but I'm gonna say more until next Monday, don't forget to stay invested.