Planning Your Own Retirement: A Rare Peek into a Canadian Financial Planner's Playbook

[Music] Welcome to the Builds Wealth Canada Podcast, where it's all about becoming debt-free. Accelerating your wealth and taking control of your money. Now, here's your host, Cornell Striber. Hey, it's Cornell and welcome to the Build Wealth Canada Podcast. Have you ever wondered how financial planners in Canada plan their own retirement once they decide to retire? Well, our guest today is a recurring guest that we've had on the show many times. He's a fee-for-service financial planner with decades of experience in the industry. And while he's not retired yet, he's gone to that age where he's getting really close. And so it makes sense for him to do a more thorough financial plan for himself for his own retirement. And so I thought it would be useful for us to look under the hood. And here's thought process when planning his own retirement as a Canadian, as surely there are nuggets of wisdom, best practices, strategies, tactics, and insights that he's applying when planning his own retirement that we can then use ourselves in our own finances. Now, like I said, he's not retired yet. And so just like in the past, he is still offering a free 30-minute consult to build with Canada listeners, which is awesome. So thank you, John, for still offering that to everyone that's listening. And so for anybody interested in speaking with John, in a free 30-minute consult, you can go to buildwealthcanada.ca/john. That's buildwealthcanada.ca/john. All right, let's get into the interview. All right, John, welcome back to the show. Thank you, Cornel. Nice to be back again. Yeah, good to have you. And John, to start, can you take us through your financial plan, in particular, the different components that you felt are important to include, and that we should all be considering in our own financial plans. And really, my goal here is to give listeners of the show a bit of a checklist to help ensure that nothing critical is missed when they are planning and optimizing their own finances either by themselves or using a financial plan or like yourself. That's perfect, Cornel. What I've done and what we've talked about is to look at an actual retirement plan that I use and the software that I use to create a plan, which covers pretty much every little details that anyone needs to have as they're creating the retirement plan. And as you mentioned, either on their own or with a planner, I think it's a great way to really get down to the details that many people miss. So I think this is going to be pretty good detailed analysis of how my retirement plan is looking, for example. Yeah, that's perfect. And then my mission here, as you're going through it, I guess both of our missions will be to try to take those elements and relate it back to the audience where here's something that they should, here's what John did and here's what you should also be doing in your own plan. Or if you're already working with a financial planner to make sure that they're covering this as well or maybe running this and this type of scenario, basically just to help prevent people from having certain blind spots. It's one of those things where it's you don't know what you don't know. So this way, hopefully by going through your plan thoroughly. And I mean, John's actually going to be going through a software and going through all the different tabs to make sure he doesn't miss anything. So it's going to be pretty comprehensive. And I think the listeners will get a lot of value from this in just at the very least giving them peace of mind that they're not going to miss something when they are doing this themselves or that their financial planner that they're working with, whether it's you or someone else doesn't miss these things as well. So yeah, I'm all set ready to go. It's a bit of a different format than what we've done in the past. But I think it'll be nice because it's using real life data, real life information, real life best practices. And then actually translating it so you can implement it. So let's do it yet. Absolutely. So I think the first question that many, many, many people ask and it's very difficult to answer for them. And so I'm not going to answer anyone else is how much money will I need for retirement? Okay. So it's very difficult to determine how much money you're going to need. What I like to say or what I like to show is basically when I'm having my first planning meeting with a client, what I'm going to show the client in our first meeting is based on how they're doing things right now based on the strategies based on how much money they're saving based on old each security counter pension plan any other pension that they may have based on all of these things. And so before you're excited, that's the first point that I mentioned to clients and I'll go through the retirement plan. I'll go through the software and show them if you keep doing what you're doing right now and using the same assumptions. This is where you're ending up at retirement. And then that'll give pause and people will either say, wow, that's a lot more than I thought or oh my goodness, it ain't happening. So it's very difficult to answer how much money will I need because whenever answer we get or we think of is certainly going to be different when we're at the retirement stage and it could be different. And as long as on an annual basis, we review the plan and we take it apart and make sure we're taking everything into a talent is the market went up or down. And those will review the plan and making some adjustments things work out but very difficult to answer how much money will I need. And so one of the first tabs in the planning is what are your lifestyle needs. But again, I'm a little bit difficult in determining how much so I say here's when you're hand in and then we start working on how do we achieve it and is that enough for not enough. And the first step is to determine to put a number in there at least or actually sorry I need been at zero and the software calculates where you're handed when you retire how much money will you have when you retire. And so at retirement there's two different aspects that we can look at we can have for example an income flow for the rest of your life starting at the age of 60 for example. And it would be the same amount of income going up by installation or what we can do is say you know what in my first 10 years or 15 years or 20 years I'll spend more money because I'll be traveling more and doing more you know be more active. And then later on in life I'll be spending less money. And so that's an option that's available also to look at and some people say you're right and age 75 will be traveling as much on the other hand you may have medical expenses. So we take some time to determine if we should be looking at the scenario and saying should we be spending more money at say is one of our retirement and then less in the future or should we have just a number going right through so that's the first thing we sort of look at and then we look at what are your sources of recombinant come where's the money going to be coming from. And there's several sources right number one is a pension a private pension or a public pension any kind of pension that one may have is taken into account. There are two types of pensions was called defined contribution pension and defined benefit pension so I take the information from the client and I'm able to determine using inflation using the pension regulations determined how much income is going to come from a pension. Okay, so that's the first step one piece of retirement income next piece and occasionally I'll pause Cornell because you may have some questions are I will certainly give you some chances to ask some questions and maybe I'll do it actually after this step which is the sources of retirement income alright sounds good. The second source is can an pension plan and so there's a lot of things to see your own when it comes to can an pension plan how much will you be getting have you worked all your entire life and you've been contributing into the can an pension plan forever and if that's the case you'll get the maximum which is rare. But the can a pension plan is an extortion and for can a pension plan we'd have to determine when do you take it is it age 60 65 or 70 certainly it's always different for everyone if one has lots of assets and won't need the can a pension plan let's say in their 60s when you can defer until 70 because you'll get a heck of a lot more others may say you know what I don't have too much. So I invest must to carry me through my 60s for whatever reason and I need to take it earlier so these are the types of questions or the types of things we look at to determine once the best time to take Canada pension plan. That's your second source the third source is old age security which again you can take anywhere between the ages of 65 and 70 and so you know you have to add inflation on it you have to take all these things into account and determine once the best time to take it. Now I used to do this calculation manually where you know I'll trial a narrative signal once the best time to take the can a pension plan and all these security but now my software has another new button that says decumulation phase and it determines what is the actual optimal time to take these pensions based on saving taxes based on extending your wealth so that's a need tool to have. And that's pretty much it when it comes to sources of retirement income obviously other than your money this pensions can the pension plan and only security now giving me any questions yeah let's do it. It sounds also like a good best practice to have is to stage one to make sure you actually have all these different sources of income that you've accumulated over the years because you may have more than one source of pension you've probably had multiple employers over your life maybe you worked for some bigger company that had an ice pension plan at one point then another one like where you had a different one and then you might be start working for a small business later and so you didn't have one and so it sounds like a good first step is to make sure that both for you and your parents. And it's a good that I gather in phase where it's like all right let's take a look at what are the different pensions that we have had over the years from companies just to make sure that you're getting a nice holistic view of everything right because I can see it being something that's easy to miss and it's a good thing to have to speak to your partner about as well because maybe before you guys gone married or whatever the case may be maybe they work that certain places and they are actually entitled to a fair bit and I can really change your plan I kind of my father he used to work for the government. And so there of course the pensions can be quite nice but then he went to private sector and so sounds like it's a good idea to have these sort of conversations with you. your partner to make sure that you are including these things, even early on in your career, it could actually be some money that you weren't expecting. Or maybe you forgot about it, but it's still there. Yeah, I can tell you stories where certain clients weren't aware that they have a certain pension. And then they became aware that once we do the planning process and the one story quickly here is someone who did know there's a pension, but totally forgot about another pension that it was entitled to from the same company. And what ended up happening is we increased his income or he increased the income being produced, went up by $2,000 a month, which is quite a decent number, right? To say, holy cow, this is new money that I didn't think of. And so you're absolutely right. When I look at myself, my wife has a small pension, and so we're going to be using that, obviously, my Canada pension plan, I've determined that it's best for me to take it at the age of 70. Again, because I've looked humanly in an asset, so I'll be able to cover myself in the 60s. People need security, isn't the 70s again, for in my case. And like we said, I think it's a good idea that we're talking about my situation, and it'll give people some ideas of what to think of. But that's what so far, this is what how things are looking for me. And I think too, it's important highlighting the big important question that traditional retirees get when they're trying to figure out, "When should I take my CPP? When should I take my OAS? Should I defer it? Should I not?" But if you have them over the years of the show, and some people take it very seriously, where they will speak to a financial planner like yourself, they put all the numbers in, and they find this mathematically optimized way when they should take it, whether to maximize it, because like you said, taking into account different income that they have coming in during that time. And then it's interesting because I've spoken to others where they are very kind of Lucy Goosey for lack of a better term with the whole thing, whether just like, "Oh, I just want to get it as soon as I can," or, "Oh, I don't," you know, like much more subjective, right? Much more fluffy. Right. But from what I've heard and seen, it sounds like this is basically a puzzle that has been solved. Software pack, software exists that financial planners know how to use to optimize these types of things. And so this is an exercise that is very much in your best interest to do when you're getting close to that age and you're trying to decide, as opposed to just going with a gut feeling of what you want to do. Because I mean, the amount you get by deferring can be very substantial. And so this isn't, "Oh, we're going to get an extra 20 bucks a month if I do X versus Y." I mean, we're talking thousands of dollars for the rest of your life and some of these cases. So I just really wanted to highlight the importance of doing that because that's also a best practice that I've heard mentioned by other financial planners after doing this podcast for like 10-ish years now at this point. Absolutely. There are things that many people haven't thought of. One of them is how healthy are you? Is there longevity in your family? So someone may say, "You know what? We're not going to make it past 80. Nobody has." And so maybe it's a good time seeking earlier because if you're deferring it until 70, you only have 10 years. So it's not only the numbers. It's not only the calculator, for example. There's other personal questions. Others may say, "You know what? I'd rather depend on government money instead of using my own money for retirement. Just in case things won't go well with investments." And so these are the types of things that accept the decision of when to take a pension class. So certainly, like I said, it's numbers, but it's also getting a little personal determining how you feel. Your risk tolerance, for example. Somebody has a very low risk tolerance. Well, then maybe, and I say again, maybe the pension plan should be taken a little later because your money is not going to be terribly volatile if you're very conservative. And so there you go. There's always different scenarios that we need to look at or different people have different scenarios which will help us determine when is the best time to take these pensions. And now a quick message from one of our sponsors. Have you ever struggled to get dental coverage in Canada because you're a self-employed, retired, or don't have insurance through work? Now thanks to PolicyMe, you can get affordable, health, and dental insurance. And you can secure coverage in as little as five minutes to cover you for things like dental cleanings, cavities, x-rays, and even some major surgeries and braces. 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Market Insights brings in industry experts and their weekly episodes cover the hottest themes like inflation, infrastructure, healthcare, and more. Tuning it helps me stay up to date on what's happening so I can be a smarter investor, and you can also submit your own ETF questions to be answered on the show. What are your thoughts on the future of the future? The best course of action is to spend time spending on spending. Even if you don't want to go over every single expense with a fine tooth comb for the rest of your life, at least do it for a bit so that you have a general idea of what your current lifestyle costs. Then you can face too, what are the changes that are going to happen once I retire. We're spending this much on gas right now. Are those going to go down because we're going to go down to one car and we're going to drive less or car expenses are going to go down because you don't have to commute anymore. If things of that nature are going to be spending less on clothes, maybe our kids will be self-sufficient at that point. We are going to be spending a lot less on groceries. Whereas for some of our teenage kids I hear that gets pretty expensive. My kids are still down. I have stories. Yeah, absolutely. I guess I'm just trying to think of a step-by-step process. Would you say that is a good way to do a wear-okay, let's find out where we are right now. Once we have these actuals, then we can intelligently start looking at all these different line items and say what's going to go up, what's going to go down once we retire. Then that gives us a much more accurate forecast. Obviously, it's never going to be perfect because things come up, but at least it's a lot more accurate. As opposed to I showed you sometimes when I hear these blanket statements, like, oh, everyone should have 80% of their income or something percent of their pre-retirement income. It's like, okay, for talking average is sure, maybe that works. But I mean, how do you know you fall into that average? Maybe one person that wants to stay in Toronto and retire there is going to have great different expenses. Then a person that wants to move to a more rural area or live there. I think having these more accurate actual numbers instead of these rules of thumb can be very helpful. What are your thoughts on that? Do you agree? Do you disagree? 100%. How I've done it for myself again, where as I mentioned, start off by saying, if you're doing what you're doing now and you're saving enough money and you have other sources of income, where are you headed towards? How much income will you be receiving in the future? Then I would say, at that point, using that number, say, all right, let's look at our expenses. Let's try to find what's going to be there and what isn't going to be there when we retire. So as you mentioned, the kids, the three biggest expenses that are gone when you retire are basically kids, mortgage, and there's one more that many people fail to realize. And it's one of the bigger expenses is your savings. Meaning your savings right now are an expense to you. It's money coming out of your pocket. You're not going to have that expense when you retire. So if you're saving $10,000 a year right now, that's gone. If you can pin off your mortgage, that's gone. And your kids, that's gone as well. So the big time expenses are pretty much go down significantly. So a lot of people overestimate how much they will need. Because they don't take into account all of those, especially those three big components. As far as checking and tracking your expenses, I do that for myself. And what I basically ask myself is, I will look at two months' worth of expenses. And I'll most of each and everyone. I don't have cash in my pocket. It's all credit or debit. And it's good because you're able to track everything down. My spending money I put an unattacking sheet and I say, my spending money will be X amount. And I'm good with that and what have you. And so look at every expense and ask yourself, will that be there when you retire? As you mentioned, big piece of the expenses are your children. But like you said, you're with gas, for example. Other people may want to travel a lot. As you mentioned, other people may want to get out of the big city and go retire somewhere else. Downsizing is another big area that we can use money in the future to take us further on is you have the assets. That's another source that you can get money. certainly look at your expenses and then once you look at that, then look at the total and look at how much money the SOST or has determined that you can have and we'll see the differences. And then if we say, "My goodness, it's not enough, we don't have enough." Then you have to think to yourself, "Can we save more?" Or do we retire a little later? And so I think that's the best way of approaching the Re-carmament question as far as income. Determine how much, based on what you're doing right now, what's available for you or what will be attainable for you? And then look at your expenses and say, "Yeah, this will be there, this won't be there." I think that's the best way to look. Rules of thumb are not great, like you said, because look at myself, I want to travel a lot more when I'm retired. And I'm not going to use that rule or that idea that I said, "I want extra amount of dollars until I'm 75 and then less." I'm taking a traveling forever, for example, as much as I can. And so all these things are taken into account and they'll make a difference obviously in determining how much money you need. Rule of thumb of 70%, or 80% of what you're making is not a good idea. Everyone's different. It's a general idea. But as I mentioned, everyone has different ideas and different plans, different income streams. There's a pension, there isn't a pension. So what are the variables, let's say, or details that need to be taken into account? Yeah, the trying spending thing. It's not a fun and exciting thing. It's like, "Oh, great. Here's another thing I have to do." Especially if your spouse is overspending, you know what I'm saying? Yeah. It's a fun eater. Now you may have to have an actual conversation and I could result in a fight. It's a whole thing. Yeah. But I mean, from every financial planner that I've talked to, it's if you want a good job done on your financial plan, you are going to be asked, "What are you actually spending?" It's in your best interest to have those numbers ready to go. And I remember us in the past. I used to track it super closely and then we hit "FY" and then we always tracked it, but there was degrees to how closely I tracked everything. But I've tried both kind of camps being full out on it and one foot in, one foot out kind of thing. Because we had our fine numbers, so we're okay now. We don't have to keep investing anymore, that kind of thing. But I mean, it causes stress by not tracking it carefully and it's much harder I noticed for a financial planner to help you when you start using these ballpark numbers, expense numbers because you don't have the real numbers. Yeah. And just from my own experience, it is an extra thing you have to do. But from all the financially savvy people I talk to, they pretty much all track their expenses. Absolutely. Yeah, if you want to do a good job, you have to do it, right? It's that famous quote where what doesn't get tracked doesn't get managed. Correct. That applies in business and it applies in your own financial things as well. Yeah. And you know what? It's also the idea of tracking will help you see what types of expenses will be there and won't be there as I mentioned earlier. And so it is an important exercise. And the thing about that is because if you track it'll show you how much money is left over for you the same. And this is important also because depending on how much money you're able to save, that will determine your lifestyle in the future. What I find is when people make large purchases, okay? Car, $20,000 or whatever. They sort of feel uncomfortable making large purchase. They feel a little guilty because they're asking themselves, can we afford this? What's this big purchase going to do to other goals that we have? Whether it's a retirement plan or whether we're saving up for a cottage or anything like that. As a one-chain determine how much money you need to save and you determine how much you are able, you're spending and how much you're able to save. Now, you'll have what I like to call guilt-free spending because you know how much money you need to save. You know that if you spend on this particular item, it won't knock you off track or it may knock you off track. And you can say, all right, so you know what? Now what has to determine is the pool in the house more important in retirement and for some reason, but it's a good idea to know where your money is going and how much you're able to save, which will provide what I like to call guilt-free spending. Yeah, that's great. That's wonderful, John. John, maybe before we continue with your financial plan and then the other components that you want to make sure included, I just want to let listeners know as well. So John, you still do the free initial consultations with both those. Absolutely. Yeah, so we have that page that we both free well back and it's still active and working and listeners still sign up for it. So we're at buildwealthcanada.ca/john, just johan. And if you go there, you can sign up and if you want to speak to John. Did you want to maybe talk a little bit John about that and what you do? I know you're retiring in the next maybe five years, we'll see, but I'm just not going to be, you're not leaving for good. It sounds like it's more of a transition to semi-retirement, all right? It all depends also on children. As you mentioned, whether it's going to be responsible for my kids, the ultimate wild card, right? Yeah, that's right. And from what I'm noticing, I'll certainly be around a lot more than I thought, but yeah, so the 30 minute chat that we have is basically, we start to get to know each other with people that are interested in having a call and it gives me an idea of what a situation is looking and I may be able to give answers right away. I may be able to tell them your expenses are too much or I should say we don't get into too much detail again, get to know each other and determine whether I think I can help them or not if they're looking for help. And so generally speaking, people will say, I'm thinking of retiring at that age. Here's how much money I've saved already. And in the first call, it's not really important. I think to say how much money you've saved. Let's just figure out what your goals are and when are you looking at packing it in or retiring or slowing down. That's pretty much what happens in the first call. And then we determine if we want to take a next step, we do take another next call. And what happens is my assistant sends a questionnaire and it's quite a few questions, which are all yes, no, I don't know answers. So it doesn't take too long to fill out. But these are high-level questions again on every aspect of wealth management. There's tax planning, estate planning, retirement planning, education planning, mortgage planning. It's your business owner, business planning. So there's all these different components of wealth management. It's not only retirement. And answering those questions gives me a good idea of what people are doing and what they're not, what they know about and what they don't know. What's important and what is important. And then at the end of that call, I'm sort of asking myself, do I think I can help this individual or this family? And I'll ask the people that I'm interviewing, does this sound like something that you're interested in? And if that's the case and we determine, yes, I can help. And yes, I'm interested or the clients interested. Then we go to another call where by that time you will have sent me your taxes, your will, your pension plans. I'll ask for pretty much every financial document that there is. And I'll see that before I have the third call with the individual. And then I can determine, yes, I think I can help. And based on the complexity of the situation, here's the cost of creating a financial plan. So it's basically the 30 minute chat. And then if we want to continue on, there's another call where we talk a little bit about every aspect of financial planning. And then it's let's get into the details on the third call. If we again, if we both agree that I maybe I can provide value and this is what you're looking for, Mr. Mrs. Klein. So that's what that looks like in a nutshell, let's say. Okay. Yeah, yeah, just thought of mentioned that real quick, just for anybody that doesn't listen to the podcast to the very end, just to let them know that you do still offer the free consultations for both kind of listeners. So yeah, so thanks for doing that. I know we've had listeners call you in the past with certain questions and then you've answered them a lot of times as well. So that was so thank you for helping people out in that way. So that's buildbothcanada.ca/john is the link and that will just send you right away to the page. And then John will reach out to you once you put in your email. And that's pretty much it. So John, one thing I really wanted to pick your brain about when we had our pre-interview discussion and you're thinking of good questions to ask, it would be helpful for the audience. One of the things that jumped out at me was you mentioned how you like to use different buckets in your retirement plan. And you found that's a way, there are obviously so many different ways to structure these things, but you like sort of the buckets approach. And that's an approach that I've liked as well, particularly for that safe portion of the portfolio because I have so much inequities. But I still like having a bit of a safe cushion as well, just in case, so that the kids still have things to eat, even when the market's dropped at 40%. Just to hold out during those financial storms. So can you talk to me about the buckets that you have? In particular, the safety buckets, especially when it comes to that safe liquid cash cushion bucket. What do you use yourself or what have you decided to use for your own retirement? And then I've got some follow-up tasks after that with some details. Maybe can you start there? Yep. Agreed that I do create buckets or we try to look at different types of investments to determine how much money you'll have. But the bucket scenario is very important when you're very close to, I shouldn't say very close, maybe within five years in retirement or already in retirement. So I used to call myself and I still come. So Mr. ETF got, except when we get close to or into retirement because it could be very volatile. As far as the buckets are concerned to help me against volatile times, will have these days, it's a good idea to have a savings account where you can put in a year's worth of expenses and you're still earning for 5% right now. And so that's one that everybody knows. But what I like to tell people is keep 18 months' worth of expenses there. So if the markets do go down, you're not going to be taking money from the investments that went down. Now 18 months, that's a lot of money for some people. But it's also maybe not enough because markets have gone down for more than 18 months and they have stayed down. I can show and I always show people multiple periods, a lot of periods over the past 100 years where the markets have gone down and they stayed down. And in certain cases, it's taken 10 years for them to come back up. And so imagine markets going down, staying down and you're pulling out money to live. That can really hurt your portfolio. It's called sequence of return risks and basically I'll put this in as quick a way as possible because I'll talk about other existing buckets. But sequence of return risk is basically, if you come into retirement and there's a couple of bad years right off the top or two or three bad years, your money holds down significantly if you're taking money out as well. Give you a quick example of a client that I had and in November of 2021, he was retired. And he had about a million dollars in savings, no pensions or anything like that. And he was retiring at age 55. He would be doing some work on the site to add extra money, but that's when he wanted to call it quits. And so he did retire with a million dollars in 2022, wherever you went, any kind of an investment you had basically or all of the types of investment that we all know, stocks and bonds, everything was down 15 to 20%. So his million dollars went down to 800. He pulls out 50,000 to live, now go at 70, 60, 750. What would have happened if in 2023, the markets went down again? We ran the numbers and it basically showed us that in two years, he lost one third of his portfolio because he withdrew money for two years and we had two bad markets or two bad years. So this is why it's important to have some safety and some safety buckets. So when the markets are going down, don't touch the investments that have gone down. Use these buckets. So one is, as I mentioned before, cash and again, that's pretty logical or it's pretty, it's well known, all right. But you need to determine how much money you want to put in there. The next one, there are tools, what's called alternative investments, which I put in my clients into, the ones that are retired or very close to retired and alternative investments are basically the same types of investments that pension funds use that are not available to the general public because there's reasons for that. But it's starting to become a little bit more available, but it used to be very well see people had access to alternative investments and now these companies have reduced their minimums because they saw a business model in 2020, 2021 and they figured let's start offering these types of services to more people. And so alternative investments basically are investments that in the past have given us the same good return to pen and return, but with a lot less volatility. These are interesting products. Alternate plans use these products. The Canada pension plan, the money in the Canada pension plan, 50% of it is an alternative investments. If I look at some very good pension funds, the Ontario teachers pension funds, all were oops, there's another one called across the country. 70% of their money is an alternative investments. Again, they're in the business of dishing out money on a monthly basis. They can't absorb volatility either. So to give an example in 2022, quite a few of my clients that are in alternative investments and it's not only alternative investments, that's a portion of the portfolio. We still have the equities. We'll still have bonds depending on the interest rates, but when everybody was doing minus 15 minus 20, these portfolios went down by maybe 3 or 4%, the most 5%. So I can handle that as a low number or as the lowest number. That one hurt us too much. So that's one bucket that I think is quite interesting and many people are not aware of alternative investments. You can even Google a term and it'll give you some information. So there's one bucket. Next bucket is something that again, it's not very well known by people and there's a reason for that. It's basically using the insurance industry for your assets, but not necessarily for life insurance. There are strategies that you can use in the insurance industry where the return is going to be competitive. There are no negative returns. The money is always going up and this is by contract and you have access to it anytime you want. I think this is a great tool again for people who qualify and I won't get into it. It's not for everybody. There's several things that we need to discuss to determine if someone would be able to use these tools. I imagine that the fees are higher and not for those kinds of products as well, right, versus something like ETFs. Certainly higher than ETFs. Alternative investments, you know, any portfolio manager that's using alternative investments will charge in the neighborhood of one and a half percent. As far as the insurance industry is concerned, any returns that I'm showing clients is always met of any kind of fees, but the fees are a little bit opaque. Let's call it. Not as transparent because there's quite a two different expenses that a company has when they're running that type of investment that I mentioned to you in the insurance industry. But those fees are always, when I show people returns, it's always met of fees, but certainly there are fees. I pay more than exchange traded funds. However, at the end, what the worst thing about exchange traded funds during retirement is volatility. They can be very volatile. In 2022, we saw that even bond ETFs can go down substantially if the interest rates go up. And so that's pretty much the combination that I use. Those three buckets, cash, alternative investments and the insurance industry to create a lot of safety. In many cases, those products replace bonds. And so there were clients again, where we had zero bonds, even though they're retired, because they will replace my alternative investments and insurance strategies. Again, it all depends also on the environment, the interest rates when we get to retirement. These are all different aspects that we take into account before we make any kind of decision. But there are certainly other tools that are out there that will help us create safety or create buckets that you have access to, which are never going to go down. And now a quick intermission to tell you about an additional free resource that you may find helpful. I often get asked what I personally invest in and why. So to answer that, I created an in-depth guide to explain what specific investments my wife and I held and continued to hold as we moved through the accumulation phase, where the focus was to grow our investments as quickly as possible and then transitioning to living off our investments in our early 30s when we hit our financial independence number. The focus shifted to living off our investments in a sustainable, fashion long term so that we don't run out of money in our early retirement. These investments are literally where we have almost our entire network, apart from our house, and is what we are living off right now. So I figure at the very least you'll learn about some great investments to consider. For your own portfolio, I explain why I pick those and I do provide the names and ticker symbols of the specific investments so that you can look them up yourself. The guide is actually a live Google Doc that I continue to update as things change so you can view it anytime to see what I'm currently holding and why. I get it that it can be super overwhelming with the thousands of ETFs and other investments to choose from for us Canadians and so I hope this will make things easier and less stressful for you. You can access the live Google Doc at any time by signing up for free over at buildwealthcanada.ca/guide. Enjoy and now back to the show. So let's say that you, let's fast forward, let's say five years, your retirees, semi retired and the markets go down and you're thinking, okay, should I have some cash in my safety bucket in like a high interest savings account right now depending where you're getting it, you could be getting like I've seen even like 5% for example depending where you are. So let's say that's the scenario you're looking at and you're thinking okay, should I take some cash out of that? At what point would you choose to take cash out of that cash bucket? Is there some sort of mechanical or some rule that you would follow like if markets are down, I'm just using another example, if markets are down 10% or more over the past 52 weeks, then I will withdraw from the cash bucket just to help us and wait for the recovery. How would you approach that so that you're not always thinking like, oh, should I take a now, should I take a later so that you're not forced to speculate on when the recovery is going to be? At what point would you say, okay, they've gone down far enough, I'm going to take some cash out. What would you do in that situation? So I'll tell you exactly what I do. In December, this is what I do for many clients, again, retired clients, we determine or our last clients, all right, 2025 is coming up. What are your expenses? How much do you think you'll need? You're going to the UK with the family, well, you're obviously going to spend a lot more money. So we try to determine how much money we'll need for the year. Okay, that's the first step. And then determine where it's going to come from. So when assets are down and you mentioned 5% or 10%, and then a hard rule, but 5% of where I start thinking about it, 10%, I'm definitely saying, let's not touch, why would we touch the money if it's down 10%, would we have other buckets which are never going down? So it'll, and it'll help them recover the money recover. And so I'd say anywhere between 5% and 10% would be a good idea to start saying, yeah, I want to use some of these tools that I have. And it was regards to the savings account, you know, like you can have $100,000 for example, all right, and you need 50,000 years, or you have $150,000 is saved in a savings account. And then we have two bad years. And now your money is running out. This is where the other buckets come into play, the alternative investments and the insurance strategies. So as a rule, anytime I see the market's going down, thinking to myself, am I going to take money from my investments? And I'm certainly not going to touch my investments, even if they go down 5%, I'd say again, I'd start in the neighborhood of 5% to 10%. And when you say the 5% to 10%, are you looking at like latest 52 weeks, or are you looking at like versus all time highs, what are you comparing it to? You know what, we can look at calendar years, we can look at what's happened over the past years. So I'm looking at annual because I do the six or seven December, so I'm looking at what happened in 2024, for example. And again, if the money is gone up, if the market is gone up and I have decent returns, then I'll use those investments and I'll let the other investments, the secure investments grow like right now at 5%. So you know what, it's not an exact sign, Cornell, like we have to feel things out. And it'll certainly depend also on how. much money the client will need and so we can always take out a combination. Maybe we want to sell something that's gone down because we can use that loss for tax purposes in following years. So again, it comes down to personalizing everything and determining your circumstances before you say which bucket. But generally speaking, markets are down, then I'm going to say I'm not touching my investments. I have a million dollars in the market and it goes down to 900. I'm earning. And I'm not going to take 50,000 out to Lynn and that was at age since the. That's where the numbers are getting a little more scary. Yeah, because the number changes so much depending what you're comparing it to right when we're up like 20% over the last 52 weeks. And then oh, let's say it drops 5% over like a short period. It's okay. You're still up quite a bit over the course of the year. So would you recommend using like a one year time frame to look when you're deciding? Yeah. Okay. That's you what you do. Okay. Absolutely. Use the calendar, ask yourself in December how much money you'll need for the following year. And if the markets have gone down five or 10% and I get over the year I've done just you know, we did 50. So we're up net five let's say I wouldn't worry about trying to time things. I'm going to take money. You'll will never figure that out. Never. And so just use a regular or an easy number and I like to use the calendar year. We're with the markets in December of 2023 versus where they are now. We've made money. Let's take money from yeah, we've made money this year. Let's take money out because the negatives could continue or that might be the end of a downturn that we had this in 2018. I believe in December we had a horrible downturn. And I believe then the net return for the year was negative also. So that was obviously one year where we said we're not touching our money. Our typical assets that we have the stocks and what have you. Yeah, but you have a combination in all those back to the word diversity and diversify if you have a combination of buckets. And then there's always going to be some source where you can say yeah, I take money this year and it's up and hurt me at all. Right. And then part two of that question would be okay. So let's say yeah, you took that money out. Markets are down. Let's say 10%. So you've been taking money out of your cash bucket. There's still some money left in there. But now let's say things have turned around. Things are recovering nicely. At what point. So again, just putting yourself in that scenario. Let's say five years. This happens to you. At what point would you say, okay, we're definitely not down anymore. But when should I refill that bucket? Because let's say you took the one year out. Things are in recovery. But do you have some sort of rule that you like to use that you would use for yourself to say, okay, it's recovered sufficiently. We're now it makes sense for me to refill the bucket. So that I'm back up to that 16 months or whatever it is that the person feels comfortable with having as a question, what would you do in that scenario? So what I'll be doing is if we've had a good run and the markets are up, then during the year, I might slice some money off and start refilling my bucket. Let's say it's the market school down. I'm going to try my best not to, you know, sell investments to refill my buckets. So having that third bucket or another bucket where you can access money that never goes down is a good idea. It may take two or three years sometimes to reseal the bucket. And then you know, the savings account, let's say, because like I said, it's certainly been plenty of periods where the markets have gone down and they stayed down. So if you only have the cash component and the markets are down and they stayed down, now you're going to be selling investments to put in your bucket, which are down. And so this is why I say as many buckets as possible. Now again, the other solution being the adding some alternative investments in that really reduces volatility tremendously. Let's go back to 2022 when everything went down to 16 or 20 percent. portfolio is with alternative investments went down four or five percent. That's my limit. Let's say I've taken, you know, went to take out money. So I wasn't concerned at all in 2022 for my clients that are retired when we determine how much money they need. Again, reasons to and as many buckets as possible when you retire. And again, it's alternative investment portfolios went down by five percent. I'll still slice $10,000 or $20,000 to put into my savings account if I've used it. Yeah, I was debating that myself and my own portfolio. Just if you are using that money from that cash bucket, at what point to actually refill it? Because yeah, if you're tell yourself, I'm going to refill it when it's at a new all time high. You might be waiting for quite a while. And that's a little and that seems a little aggressive, right? Because that money is supposed to be secure. And if you've been living off that for a while, you're going to be kicking yourself where all the markets recover nicely, haven't hit another high and then we have another correction. And then now you're like, Oh, well, shoot, I should have refilled the bucket when it was up, you know, five, like it was, you know, when it was already been recovery mode. That kind of thing. Yeah, so I was just trying to think of what is a good kind of time where you say, Okay, I don't need to have the all time high, but it's got it has to have recovered sufficiently. So I don't know, like do you think maybe having a, if like your principle has been recouped, then okay, maybe at that point, refill the cash bucket. So let's say you know, yeah, then when you invested, it fell, we had a drop and then now it's things are back up. So now you have, you're definitely not selling at a loss. You're at least at a break even. You think that maybe would be a good time to refill that cash bucket. So here's what I'll say about that when the markets are down considerably, we review financial plans with our clients every year, right? Or actually, I do it every six months, but we will review a financial plan. And if we determine, let's say there was damage done and now the plan says instead of, you know, 60,000 a year that we were counting on, well, because of the markets, it went down and we're at 58 now or 57,000 liras now. So we reset our plan. We reset the new number based on how much damage was done in our portfolio. And at that point, I'll say, okay, the markets are down right and we've reset. But now let's say the markets have gone up by 20% are rebound, but they're still not a tie. I would certainly start slicing money off my investments at that point to fill buckets. If I don't have to fill the savings bucket, if I don't have any other savings strategy or any other safe buckets. And so I wouldn't wait, certainly wouldn't wait until the markets come back to where they work. Again, I'll show you 50 time frames where the markets went down and they stayed down for five to 10 years. We've had periods in the 2000s. And those years where it took over 10 years for the money for the markets to recover once we had our downturn in 2001, 2002. So let's not wait. What we need to do is reset the financial plan, live with the fact that we may have a little less money. And now we're back at, let's say, zero. Forget about what happened in the past. Now we determine that we only have 58,000 dollars going forward. If we need, let's say, 4% or 5%, going forward. And it's done at that point and say, if the markets are going to rally, play percent, I'm going to slice a little bit off even if they haven't recovered. And you know what? Sometimes there's no choice. Sometimes there's just no choice if you don't have enough diversification. And you'll have to slice money when you're down. If you've consumed your savings account and were two years later, and you have nothing in there because the markets have been going down, sometimes you have to take money and you're going to take a loss. And then we have to recent your ideas of what retirement will look like. Does that make any sense? Yeah, yeah, for sure. That sounds good. It's always difficult. And this is why I say, let's try to create as many buckets as we can under, under my client circumstances, right? They may not have enough money to get all these tools that are out there. But it's certainly, these tools have become more accessible in the past, like, say, 15, 20 years. And many people are not aware of it. And there's a reason why they're not aware of them is because banks don't participate in some of these strategies. And so your bank will never tell you anyone who's working on commission will never tell you about these types of strategies. So that's where we say it's always a good idea to consult. You can have a planner at a bank or a brokerage firm. It's always a good idea to consult with an independent financial planner who's not getting paid on commission to determine what's your situation and what strategies are available to you. Are they going back to your plan, John? Are there any other, because we're getting close to the end of the show here? Are there any other components that we have not discussed yet that you think people should have on their checklist when it comes to creating their financial plan, making sure it's something that they've considered or that they've at least spoken to their financial planner about, whether it's yourself or someone else. Is there anything else like that that you'd like to mention? Absolutely. Most important thing is under estimate, all the time, underestimate the rate of return that you think you'll get over the years. So what I like to do is use a rate of return, let's say of 5%, I could be 6%, let's say 5 to 6%, depending on how we're investing money. So I'll say let's assume we're making only 5 to 6% until retirement. And then during retirement, let's assume we're making 4% on investments, which is not very difficult to make. So when you're underestimating, then you know that the retirement number that comes up, you know it's going to be quite conservative. And so certainly don't use very high rates of return when you're working on your financial plan. That's extremely important. Using those numbers will help you determine how much you need to say it every year. And so that's one thing. Another thing, and we talked about this before, is if I were any younger, if I were 30 years younger, and I know what I know now, are there any other strategies that I would use? And yes, I'd say put the younger, younger people in their 30s, for example, if you can invest in real estate for a portion, and I think it's a great idea, because it's quite simple, because let's assume real estate and the stock market have the same returns over the long term. Nobody knows what will happen over the next 10 years. So let's assume they're doing the same thing. Now if you're young and you're starting out, and you buy some real estate and now you have a mortgage. So you're paying, let's say, $1,500 a month in the mortgage. Well, it's that real estate goes, and let's say the property is worth a million dollars. If real estate goes up by 5%, not your property is worth one million 50,000. So you've made on your mortgage payments that you're making, you've made $50,000. Whereas if you just pay your money and invest it in the stock market and you're putting $1,500 in the same expense, let's say, as the mortgage would be, you're only going to make, let's say, 5% on those contributions that you made over the year. So you're leveraging. You're making 5% on an asset that's worth a million dollars with real estate. Versus making 5% on $1500 contributions every year. So that's, I think that's a great way to build wealth. As we get older, if wealth and real estate could be something of a lice, you know, or people that have an interest in real estate, they like to see their asset. They like to work on it and what have you. It's always a life decision, a lifestyle decision. When you get older and let's say the mortgage is gone, now that you can tell yourself, well, when I keep the real estate and having the same issues, the plumbing is broken, I'm on vacation, and they get a call from a tenant. Do we want that? Or would you rather say, let's sell the bloody thing? And now we have a lot of money, put it in example, bank stops and make 5% just on the dividend. I'm really generalizing here, but it's a life decision that you'll make or lifestyle decision when it comes to investing in the future. So under estimate the rate of return, over estimate what your expenses will be. So when I'm looking at my expenses, I'll tell you Cornell, I'm a financial planner for 30 years. Why they still haven't figured out a way to say, unexpected investment or expenses. So I'll say, for example, we have expenses of $7,000 and the actual, this is what I'm assuming, and the actual expenses 85,000 because something extraordinary came and slapped me in the face that I never considered. And so what I like to say is, if you come up with a number, you work with your planner and you'll come up with a number, let's say you need $70,000 to retire, ascent, taxis, and today's dollars. This is what you'll need based on your expenses. Then I'll take a flat, okay, you know what, let's increase them by 16%. Because it's going to be expenses that we've never taken to account. And so, instead of 70, we'll say it was late. And then that will reset the plan. And it may make you retire a little earlier. You may need to save a little bit more. But certainly, if you increase your needs or what you expect your needs will be by 16%. It's very likely that you'll have everything covered. I could tell you, in my expense, this is just happening today, okay? My budgeting that I track, I have a section called Extraordinary Expenses. And I put $1,000 for example, because there's almost, and as of today, it's been $2,000 of extra expenses that I had this month. And so when so much I said, you know, what's the best way of doing it? Meaning, I like the idea of saying, you've got an increase, I get in my experience, we've always underestimated our expenses when I retire. So I just say, people, when have you come up with ads 15% of that? So that's another thing that I look at when we do financial planning. Well, I should say, you know, say it as much as you can, obviously, but don't save so much money that you're stuff eating, crass, macaroni, and cheese. You need to have a good life also when you're accumulating money. It's not all about what am I going to do 20 years from now or 25 years from now. I like telling people, and join us a little bit now, I assume that you're going to retire a couple of years later. So I just love telling people, spend money. I mean, I think I'm the only planner that tells you I spend money because what I've seen far too often is, you know, there's a person in a retirement home and they're the richest person, meaning, I don't want to be the richest person in a retirement home. What if I'm unhealthy in the future to spend all this money that I saved in my, during my lifetime? Shantel people spend money while you're at it while you're going through life. It isn't only what's the end value or what the end goal or end result will be. It's, you know, adding a good time when you're going through it currently or over your savings over the years of savings. So these are the types of things that I look out for. Let me see what else we can do. I look at age, in other words, how long should we take off an answer plan to age 80 and 85 90, 90 sites? I have one client that we're thinking it to age 100 because there's a lot of longevity in their family. And so that's another variable that's safe to think about. Is there anything else? You know, what ends up happening Cornell is when I'm having a conversation with a client, other things do come up. And everything, anything else I would say, these are all what affects most people, what I've just mentioned, the underestimate your rate of return, overestimate your expenses. But again, getting personal, and when I got to know the client very well, we determine other things that we can do also that might help us increase our chances of reaching our goals. So again, that comes down to circumstances. And what kind of action do people have right now? Is there a pension plan? What have? So it changes from one plan to another, but those are the general points that I think are important to look at. So I'll let me wrap by saying this. Let's think about you need to determine a certain age that you want to say, and I call it now my three of the years. Nobody wants to call it the retirement because there's just so much to do and you can do more. But at what point do I want to say, if I want to work, I'll work, but I'll work only if I want to work, not if I have to. So determine an age like that. Go over the sources of income that you'll have when you retire pension, all these security talent, pension plan. Look at your investments and determine how much you have and how much you are able to save. Come up with a sustainable number of retirement. I'll show you. Where am I going if I continue doing this? Determine that and then make changes if need be under estimate, you're in a return over estimate your expenses. And if we do all of that and we crack it at least once a year and make adjustments because life will change, the markets will change, rules, tax laws will change. So every year make any kind of adjustments that are necessary and it's going to be minor adjustments. And then I like to say it's hard to screw up if you follow these little rules. Create your plan, review it very often. I do twice a year, at least once a year, make changes when necessary, make changes on an annual basis, and then it's hard to not realize your goals. Awesome job. Thanks so much. I just have a good practical information. And yeah, thanks again for coming on. So yeah, if everybody listening, if you did want to have a chat with John, he does still offer to answer some questions and do the free initial consult over at buildwealthcanada.ca/John. So definitely feel free to go there to check that out if what John is saying, you feel is a good fit for you and for your situation. And John, thanks again for coming on. It's a year, a long time guest on the show. People, the listeners seem to really like having you on. So it's great to see you again. And he still went overtime. We're trying to reduce it. And we still went a little bit more, because the conversation always is always about six questions. I was going to ask you, but yeah, you know what? Maybe in the next time. Listen, maybe before RST season. That sounds good. That sounds good, John. All right. Wonderful. Have a great summer. You bet you too. All right, bye. All right. I hope you enjoyed the episode. Please share it with someone that you think may find it useful and of course, leaving a review on Apple podcasts or Spotify is always super appreciated as well. I'd like to end with a big thanks to one of our sponsors who, apart from my investing course, literally keeps the entire build wealth Canada podcast and website free for you. Do you know why asset allocation ETFs have become so popular? asset allocation explains over 90% of the variation in upward folios quarterly returns. So it's no wonder Canadian investors are turning to these ETFs today's sponsor Bimo ETFs offers these innovative all-in-one solutions with the Bimo all equity ETF Z EQT the Bimo growth ETF ZGRO the Bimo balanced ETF ZBAL and the Bimo conservative ETF ZCOM and many more Bimo developed these to help provide investors with ETFs that offer broad diversification and are also low cost and simple to use. 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