Hello friends! Welcome to the much-anticipated next installment of the Financial Planning Vicennial – planning at age 59!

I wrote Financial Planning Vicennial – Age 58 in late November from home, as we were still under lockdown. As is par for us, so much has changed since then. We’re back at the office full time, and are pleased to welcome Paul Corbier, a realtor with the Real Estate Centre, into our suite. Paul runs a completely separate business from us but he is an excellent personality match and is nice to visit with the social areas of our office. I’ve also been very busy getting my fingers deeper in the financial industry. By the time this is published I would have written (and hopefully passed!) two more Trust and Estate Practitioner designating exams (fourth and final in November!), been named as the Chair of Education at the Institute of Advanced Financial Planners, become a life and qualifying member at MDRT (which means I’ve qualified now for 10 years consecutively), and Darcy and I were flown to Washington DC because I represent Canada as a Global Council Member for MDRT.

That should pretty much catch you up. Busy, as always, and loving it.

So as the leaves rustle in the tree outside my window this morning, let’s segue into financial planning for age 59. Age 59 is a gateway year between one’s Peak Earning Years and achieving Financial Independence. Most of Western society still accepts age 65 as a key retirement date, so the next five years will bustle with pre-retirement activity. Age 59 is the year that you mostly determine what those activities are. Age 59 is the year of the Plan Update, the Fiscal Fast, and the first glimpse at Practical Estate Planning.

The Plan Update

Most people only retire once. Advisors, however, have the great pleasure of helping other people retire through most of their career. Through this experience we come to know that, compared to accumulating your nest egg, decumulation is way harder. It takes a much deeper understanding of taxes, investments, and most of all, people.

More than half of adults 59-year-olds fear running out of money in retirement. According to a recent study, 44% even considered themselves anxious about it. And that’s completely fair. Regardless of how much someone pre-saves and pre-plans, leaving employment will mean giving your ability to earn an income. The last thing we want to do is placate this fear. If you are 59 years old and contemplating leaving your career, you have earned the right to feel anxious.

Instead, we can lean towards these concerns and embrace them by 1) understanding the math around them, and then 2) by build structure that support them.  

One of the things we learn at MDRT is that if you are balanced you’re not moving anywhere. At the time the speaker was riding a very tall unicycle. But he said that to get somewhere, you have to unbalance. You have to lean into the direction you want to go. The action item here is an Age 59 Financial Plan update with a concentrated and focused lean towards cash-flow planning. The more details the better.

There two main questions we demand of the Age 59 Financial Plan update. One is how much can you afford to spend? The second is how much can you live on? If your accumulation journey has gone well thus far, then these are completely different things.

AGE 59 ACTION STEP 1 – Gather all your current pension updates and investment statements and send them to your financial planner. They can help you answer the first question for you: How much can you afford to spend.

We do family mantras at home, although we don’t necessarily call them that. Here’s one to end this section: You can have anything you want, but you cannot have everything you want.

The Fiscal Fast

The next question to answer is how much can you live on? Enter the Fiscal Fast.

When we talk about a Fast, you’re maybe thinking about when you had to get bloodwork done last and were forced to self-restrain from food and water, and while necessary, there was a deprived unhappiness to it. Taken another way, Fast can mean accelerated movement. Our kids would call it “launch mode”. When we’re in our accumulation years, we’re often running so fast that we self-restrain from the beautiful moments in between each task. And that also has a kind of deprived unhappiness to it. The Fiscal Fast is about choosing to self-restrain from all of the fastness of working and earning and saving and spending, and learning who you are when you slow down.

To figure out the answer to how much can you live on?, you need to enter a fiscal fast. The key word in this question is LIVE. We’re not asking how much you can survive on. I want to know how much it will take for you to LIVE. There are only two ways you get to find out who you truly are. The first is in a moment of crisis, and the second is in times of prolonged boredom. The fiscal fast should ideally last no less than three months. In this fast, you are to do your best NOT to buy any distractions. Allow yourself the gift of boredom. If you end up spending your Fiscal Fast in distraction you might be ready for financial independence, but you’re not ready to retire.

Consider this second mantra: If you don’t do it now, you won’t do it then. If you think you want to golf in retirement, but now you find yourself on the couch instead of mowing the lawn or sitting studying the topography of your yard, then you probably won’t. If you think you’ll be painting, but your art supplies is downstairs and downstairs is cold and doesn’t have the right lighting, so instead you’re touring the kitchen cupboards in search of natcho-like treats, then you probably won’t do that either. The Fiscal Fast is your opportunity to choose your “do it now”s, so you will have some “do it then”s.

AGE 59 ACTION STEP 2 – Enter a Fiscal Fast and give yourself the gift of boredom. After three months, bring your bank statements and credit card statements from your fast to your financial planner. Now we can answer the question how much can you live on?

The answers to these two questions will help give context to the fear of running out of money, and that will allow you to prioritize the actions that need to be taken in the coming years.

Practical Estate Planning – a first glimpse

One of the more common side effects of investors raised by parents who had lived through the great depression is the habit of hording money. This materializes into a whole bunch of cluttery smaller accounts in different financial institutions, but also the inability to really conceptualize having an estate big enough that it is worthy of planning. For the mass-affluent investor, whom we most typically work with, this looks like an accelerating net worth into the early 70s, a plateauing into the mid-70s, cresting into the early 80s, and then generally some level of actual spending down.

Estate planning has many different facets, but one of the items that may be particularly interesting to a 59-year-old who can still flaunt their insurability, is planned giving. Canada doesn’t have estate taxes, and in Alberta estate administration fees (read: probate) are nominal, but there can be sizable capital gains taxes on non-registered investments and rental properties, taxes from selling farm land or a business over the lifetime exemption, and taxes from the deregistration of a RRIF account.

I’m going to put a few numbers to this just quickly for an illustration – I did say it was a first glimpse – but for the sake of the glimpse let’s say that a couple comprised of two 59-year-olds will have $100,000 of taxes owing on their terminal return at the death of the second spouse. If no estate planning is done, this tax will come out of the value of the estate, a clearance certificate is obtained, and the residue of the estate is allocated as per the instructions in the will. As an alternative to paying the taxes outright, the conscientious 59-year-olds purchase a joint-last-to-die insurance policy for $200,000 with a named beneficiary as a local registered charity. A whole bunch of assumptions later, and the $200,000 life insurance policy that costs $105,000 to fund creates a $100,000 charitable contribution receipt. With some extra planning and we have successfully disinherited the CRA to the favor of a life insurance company, and in the meantime a charity has received a significant donation that the estate would otherwise not have been able to afford.

Why focus on this for our Age 59 plan? After age 59 the cash-out-of-pocket to fund the insurance policy starts to become significantly more than what the tax owing would have originally been, which makes the strategy less fun. (Note: charts below show BMO T100 policy on a male/female non-smoking couple of average health).

AGE 59 ACTION STEP 3 – Once you’ve figured out how much can you spend, and how much it will cost to live, your final step is to consider how much it will cost to die.

Our mantra for this section: Inner peace doesn’t come from having everything you want, it comes from wanting everything you have.

If you don’t want everything you have because you have more than you want, you can give it a purpose to the abundance through planned giving, and make it the part of your legacy that you want the most.

For more information on cash flow planning, or if you have questions on the taxes projected in your terminal return, speak to a Registered Financial Planner today.

Meagan S. Balaneski, CFP, R.F.P, CLU, CIM

Associate Portfolio Manager

Aligned Capital Partners

The opinions expressed are those of Meagan S. Balaneski, and may not necessarily reflect the views of Aligned Capital Partners

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Meagan S. Balaneski can be reached at mbalaneski@alignedcp.com