It's hard to plan ahead. But making a plan, and sticking to it, is a key to success in just about everything, including retirement.
Not planning ahead is a strategy that just won't work when you retire, and regular paychecks stop coming in. Even if you're not even close to your retirement years, it's never too early to start thinking of a serious plan for your health, financial security, and post-career fulfillment.
Katherine Rapp, senior vice president of retirement services, has been working at NFP for over three years and after a career that spans nearly four decades, she is retiring at the end of the summer. We asked this retirement expert for some insight on tips and tricks to consider when planning for retirement.
Editor's note: This interview has been edited for clarity and brevity.
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NFP: How does it feel to be retiring?
Katherine Rapp: I think everybody naturally thinks that you're super excited and you've got your whole world planned beyond this date. And for me, that's not really the case. I think COVID has certainly impacted what I would've wanted to do in the next 12 months, but we haven't really made any secure plans for traveling or where we want to go and those kinds of things. People typically have that big trip scheduled or the next six months planned out. For me it's a bit terrifying. For more than 35 years, I've been following a schedule, so getting up and not having a schedule to follow will be new. As a schedule-oriented person the unknown is kind of scary.
NFP: How did the pandemic affect your retirement plans?
Katherine: I think COVID has either delayed or accelerated people's plans to retire. I used to joke when I did seminars for our clients that when you retire, every day is Saturday. And Saturday is the day you typically spend the most money, right? I was nervous myself thinking "can I afford to retire?. But COVID really put things into perspective for a lot of people on the wants versus the needs. I know from talking to retirees that for the first six months they spend a lot of money going on trips, but then they go back to their routine. You are who you are. Whether you're a golfer or you spend a lot on normal life or you're more cost conscious. For me, the line of work I'm in I was always concerned about budgeting and not spending too much.
My mom grew up during the Great Depression, and she always ingrained in me: don't spend more than what you earn. Don't get into debt. Live within your means. I know as generations proceed, we've gotten away from not owing a lot of money. I think it's the way a lot of people think, but I see in my own children, they're sort of now dialing back; pandemics can happen, you can be out of work for a year without any fault of your own. People have had mental health issues, including members of my own family. I think it's important to get back to the basics and just be real with yourself and try to figure out wants versus needs. And It's usually those things that aren't costly that matter most, like your family, your friends, your pets and just being comfortable with being able to be safe in your own existence.
NFP: Let's talk about the planning process. Did it start at a young age or when you got into the retirement space?
Katherine: When I first got out of university, I worked for the federal government for 12 years at the income tax department. You know, governments have defined benefit pension plans, so I didn't think twice about planning because the assumption was that I'd have a good pension when I retired. So, until I left the government 12 years into my career, I hadn't even thought about planning or budgeting in my own personal life. Early on, I read The Wealthy Barber, which had the simplest message - pay yourself first. I firmly believe the younger you can start, the easier it gets over time. I preach that to my kids. One of them is a saver and the other one is not. When you start early, you have time on your side. It's a huge factor in growing your assets.
NFP: That's a good segue into my next question, what is the best first step? Would it be to allocate 10 per cent of your pay from a young age?
Katherine: It depends on how much you're earning. But if you can save anywhere between 10 and 20 per cent, and keep that going, the replacement ratio of your income when you retire will help. I think 10 per cent to me has always been the go-to.
NFP: Are you able to highlight a couple of different areas that would be good for people to look at during the retirement planning process?
Katherine: It's never too early to look at where your money is going to come from when you retire. Number one: always take the free money. If you have a workplace plan where if you put in 5 per cent to get that percentage match or whatever it is, do it. That's money that you should take advantage of and you'd be surprised how quickly that will grow. But I also feel strongly that you need to figure out how much you'll receive from the government money because that's the foundation for most of us. You can also consider getting a financial planner or using one of the many free tools that are available. It's like any journey, you're going to have bumps that come up and you'll need to adjust your plan. You may have to scale back on your saving from time to time, but you'll still have a plan in place.
I think if you can get a plan in writing, ideally with a professional, you are more likely to stick to it. You can always tweak it along the way, but a plan keeps you focused and disciplined. Find someone you trust and who has your best interest and start working on it.
NFP: What are some other bumps that people can potentially face along the way and do you have advice on how to mitigate those bumps?
Katherine: People lose their jobs, they have an another child, they get divorced, buy a cottage. It's life happening and but financially they are potential bumps. At the end of the day, I think you need to be able to sleep at night. And again, you need to have sound financial guidance, whether that's a certified financial planner or somebody at your bank to help you with your investments. There's no magic bullet, but we all know ourselves.
NFP: Right, it's different for everyone. Everyone has different mindsets. I guess at the end of the day, it's just about how you ultimately come back to the planning phase of it all. Some people are more liberal in their spending that others. So, every situation is different.
Katherine: There are different routes, and we all have different drivers. Some people's drivers are making sure by the time they retire, they can help their kids buy their first home, which is becoming a bigger challenge right now. Some people don't want to leave a penny for their kids because they feel like they've supported them enough already. There are so many variations so your plan needs to be personal to you. That's why I think you need to find somebody who understands you. Your best interests and your actual goals have to drive the advice you get and the plan you ultimately create.
NFP: Do you have any plans post retirement?
Katherine: For me, I'm looking at it as a new beginning, a new adventure. Now that my kids are adults, I want to be able to do something unique to my interests. And I think again, because of the conservative, disciplined, rule-oriented person that I am, I've never really followed those things. And I'm not going to say they're dreams, because I don't really have any, but I'm really looking forward to finding something that'll keep me engaged and busy.
NFP: That's great Katherine. Is there anything we didn't ask that you wanted to touch on before we wrap up?
Katherine: We're seeing more and more that when people are going into retirement, they still have a lot of debt. And to me that is a poison. The last thing you want is to be on a fixed income worrying about increasing costs due to debt that you've taken on. For me, it was a priority to be debt free and that drove a lot of my retirement decisions.