Many of us hope to reach the point where work is an optional activity. It’s a way of life where you no longer need to work to sustain your lifestyle.
Instead, you have built a source of sustainable cash flow from your portfolio of stocks and bonds, real estate or other investments.
To achieve this “work-optional” life, start with understanding which stage of life you’re in, then focus on appropriate priorities when building wealth over the medium and long term.
Here are four key stages of pre- and post-retirement where you may find yourself searching for solutions.
Stage 1: Wanting it all
This is a stage often experienced 15 to 30 years before retirement. It’s characterized by multiple goals, including the desire to accelerate your career and income, buy a bigger home, plan for children’s education or support aging parents.
At this stage, it’s worthwhile to consider developing a financial plan that projects the impact of current saving and spending on future retirement goals, and set up automatic monthly contributions to your investment portfolio.
Build a financial safety net like critical illness insurance, to help protect retirement savings from being depleted in the event of an unplanned health setback.
Stage 2: Time is running out
This stage typically arrives three to 10 years before retirement. Feeling like time is running out, at this stage people often ask, “How much money will I need to have before I can retire comfortably?” Beware of underestimating how much is required to fund a sustainable retirement that involves an active lifestyle.
Consider increasing your savings to your investment portfolio and review portfolio returns with your adviser.
Determine if existing insurance policies, wills and estate plans are providing the right protection for you and your family.
Stage 3: Work-optional life
This stage begins at retirement when going to work is a choice, not a necessity. At this stage you may be active and travel a lot. In order to sustain the work-optional life, you may require professional advice to balance cash flow needs.
Your cash flow may come from multiple sources, unlike a salary, which tends to be fixed.
Balance spending for today and investing for tomorrow and cut down on unnecessary expenses.
Stage 4: Giving back and a focus on legacy
This stage tends to be filled with greater reflection and a deeper awareness of your life’s purpose, and it typically involves less physically active travel.
Consider consolidating your assets to simplify the process of succession and estate planning.
Update your financial, investment and estate plans, allowing you to be prepared for future challenges like memory loss and cognitive decline.
There is no fixed age bracket or prescription for each of these retirement planning stages. For some, the stages may come earlier; for others, later. But the need for financial planning is important for all, especially for those who want to achieve a work-optional life.
Maili Wong is a first vice-president and portfolio manager with CIBC Wood Gundy in Vancouver, and is the Amazon bestselling author of the book Smart Risk: Invest Like the Wealthy to Achieve a Work-Optional Life. She holds the chartered financial analyst (CFA) and certified financial planner (CFP) designations and is a 2012 winner of the Business in Vancouver Forty under 40 award.