Call for custom-made retirement planning

By Vikram Barhat | February 8, 2011 | Last updated on February 8, 2011
2 min read

When it comes to planning retirement, it pays to go beyond covering all the usual bases. The optimal retirement planning process must adapt to individual goals, according to a report from Laurentian Bank.

Most financial institutions apply the standard rules. They take stock of client’s assets, a revenue stream is structured to generate about 70% of pre-retirement earnings; and thus an amount that needs to be saved is determined.

But it’s not the carpet bombing of basic considerations but precision-guided planning that hits the target for each individual need, says Denis L’Hostie, senior manager of financial planning at Laurentian Bank.

“Some of our clients could be able to meet their needs with 50% of their pre-retirement revenue; others who wish to see their plans come to fruition will have to maintain the same level of revenue,” said L’Hostie “Our work consists of helping our clients be aware of their eventual needs and of how they can adequately meet those needs by adopting custom-tailored saving strategies.”

It depends on the particular situation, and it’s the detailed process that adds real value, he added.

The process includes a budgetary exercise to develop a very detailed picture of the needs of individuals upon retirement, he said. A more holistic approach defines specific and personalized objectives for maintaining the desired quality of life, and creates saving strategies that take full advantage of all relevant financial and taxation aspects.

“It is an exercise that can seem to be quite tedious, but it provides an overall picture that is very precise,” said L’Hostie. “All expenses must be foreseen, and clients often tend to underestimate certain aspects, such as their personal spending.”

The client needs to determine if, when and how much must be invested. This rigorous budget planning exercise helps determine where they must cut or reduce their expenses to save systematically.

L’Hostie asserts it is important to be able to determine future needs as precisely as possible.

This type of planning offers clients added value in the form of a clearer and better adapted vision of specific conditions. Different rules are then applied to maximize retirement revenue.

“Let’s take the example of an individual who has not made use of their full RRSP contribution eligibility, which totals $25,000,” said L’Hostie. “It can be more advantageous in certain cases to take out a loan in order to gain access to the tax benefits available.”

Taking into account all the deductions that will be reinvested, and current low interest rates, a taxpayer stands to gain even by amortizing these tax deductions over several years. At the same time, their retirement funds begin to grow tax-free from that moment on, he added.

Vikram Barhat