Our firm has been a keen proponent of personal financial planning practically since our inception in 1979. “Financial planning” received more formal recognition in Canada in 1998 when the international mark “certified financial planner” crossed over our border. Don was one of the earliest crop of qualifying CFP professionals. Don also served on the National Board of the organization that bestows the CFP mark, and was named amongst its first ever group of nationally recognized “Fellows“.

We expanded our financial planning practice to embrace the concept of formal Six-Step financial plans, and have been doing them for many years. When Trivest joined our fold in 1994, there was a very logical fit between the financial planning and investment management functions…. to the extent that Trivest adopted the moniker “Planning-based investment management” in its approach and its marketing. Nilson & Co prepares the Plans and Trivest utilizes them to direct both the big picture and the detailed aspects of prudent financial management.

Many known questions are answered and many unforeseen questions are also answered. Some plans have a single core question – when can I retire? – and others have multiple questions. In this article, we share some of the lessons and “ah-hah moments” from those who have undertaken a formal Plan.

Case A “Get me oughta here”

The client desperately wanted to retire from an uninteresting job. The Plan analyzed the financial math and found the long term a bit weak. A modified Plan of working one more year made a material difference. Why? An extra year of working was one less year of life’s consumption needing to be funded by the retirement pot of wealth. Also, as a net saver at that point, one more year of working meant one more year of adding to that retirement pot. So, the extra year of working served double-duty. The Result: 365 more ticks on the calendar lead to a more secure retirement.

Case B “I wanna become a snowbird”

The client was retired already with a Plan. A vacation down south in the winter sun discovered the severely discounted real estate prices in the American sunbelt. “Can I afford to buy down there”? The existing Plan was revisited with this purchase in mind. The financial math worked, with a few do-able adjustments. The Result: 6 month stays in Palm Springs every winter…. and cheaper living costs there which recoup some of the investment costs.

Case C “How do I manage my inheritance?”

The client received a significant inheritance which transferred over in kind, as a portfolio exclusively of stocks. “Should I keep all of these stocks? They go up and down a lot!” The financial math concluded that the couple’s lifestyle aspirations were reasonable and secure with a lower return/lower volatility portfolio which would include some fixed income in place of stocks. The long term estate value likely would be less as a result, but, for the childless couple, ending estate value wasn’t important. Being able to sleep with less volatility was more important. The Result: more sleep.

Case D: “ I am 50 and haven’t saved a dime”

The client recently had got their last child out of university and was sitting on a massive amount of unused RRSP contribution room. He had read about how much capital needs to be accumulated to fund retirement and it felt hopeless. Child-rearing was finished and the mortgage was almost paid off, and cash flow would commence to free up.

“Hi, Tom-allow me to introduce myself..I am Tom-2035… and I would like to have a little chat with you about our future. Don’t feel guilty about piling up all that unused RRSP room! When our pension system was redesigned in the ‘90s, it encompassed the reality of life’s cycle…kids, mortgages etc. The fact that Canadians collectively have amassed huge unused RRSP room is, itself, meaningless and not a cause for concern. You haven’t failed– you are just entering the next phase in life’s cycle (..and by the way…you raised great kids!)”.

We calculated how much new RRSP room was being accumulated yearly, and got a commitment to put this aside on a monthly direct deposit. We took the present accumulated unused RRSP room and amortized it over the remaining years to retirement, and got a commitment to supplement the annual RRSP contributions with that amount. The sum of these two large RRSP contributions would generate large tax refunds every year, which would generate tax refunds to help finance the ongoing large contributions. The Result: A executable Plan, a nicely building pot of investable wealth and realistic hope. And by the way….don’t take on an overly risky profile with your investment portfolio, on the theory that you have to in order to catch up. Reward requires risk, but risk doesn’t promise reward.

Case E “How can we fund three college degrees?”

The couple had three sons, all fairly close in age, all advancing through their teens and all university-bound. “While still paying down a mortgage, how can we pull this off?” The first part of the answer was to find $5,000 per year per child to contribute to a family RESP and receive $3,000 annually in government matching grants. The second part was to lay out a multi-year spreadsheet which started today and ended when the youngest son finished university. Each year, the students’ tuition and living costs would be forecasted, and each year the cash flow sources from RESP income, summer jobs and scholarships would be estimated. To the extent there were shortfalls between the forecasted income and the outgoes over those years, this highlighted when, and how much of, a problem was developing, giving a heads-up to address additional sources. The Result: the youngest son graduating this year to become an accountant (bonus, huh!).

Case F “ Three people are fighting over my finances”

Me, my retirement years and my kids”. Most of us are obliged to manage the balanced interplay of that triad: our today, our tomorrow and our heirs. Once retirement commences, we leave behind the saving conundrum, because now we only need focus on living off our accumulated wealth. But peace of mind is still elusive because we have to trade-off that triad. Our experience, generally speaking, is that retirees should embrace whatever “bucket list” they have held retirement, and do it sooner than later. However, if that bucket List is expensive, the new conundrum is whether we are compromising our tomorrow and our heirs for our today. The financial math in a Plan does an excellent job of addressing this. Living costs can be increased accordingly in the first retirement decade(s), and the impact of that can be seen for the subsequent retirement decades. The impact on estate values also will be apparent. The Result: if this forecast shows that “all three of you” can be satisfied, then all is good. If living it up is forecasted to cause problems downstream, then trade-offs can be willingly addressed with prescience…and balance will be found.

Case G “Can we each go it alone?”

A couple had been clients of ours for many years, but they decided to separate. Naturally, each was concerned of what their financial future would be like, when the family wealth was divided in two. While we have spent years serving the couple, at this point we cannot advise both through this process– a formal professional conflict of interest arises. However, as the party who knows much about their tax and financial affairs, we can trod a middle line in terms of providing both party’s advisers with information. This may include preparing formal financial plans, showing what their worlds would be like in various asset settlement scenarios. The Result: both parties can negotiate knowing how their own future worlds will play out. Sometimes, after the separation has been completed, we return to representing both parties as they get on with their lives.

Article published: Dec 2013