Episode 183: Are You Optimizing Too Soon? The Retirement Planning Mistake Most Canadians Make

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Are you racing to optimize your investments before figuring out if you’re even on track for retirement?

Many Canadians jump straight into strategies like the Smith Maneuver, tax efficiency, and leveraging — but skip the most critical question: What do I actually need to retire on my terms? This episode tackles the foundational work you must do before fine-tuning your wealth plan, so you don’t optimize yourself into a shortfall.

By listening, you’ll discover:

• Why your “vision number” is more important than which spouse holds the investment
• A simple way to reverse-engineer your retirement timeline based on what you already have
• How to calculate whether your current strategy is enough — or needs a total rethink

Before you tweak another investment detail, hit play to learn how to build a retirement-ready plan that actually works.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

A successful Canadian wealth plan starts with clarity — not just on investment strategies like the Smith Maneuver or RRSP optimization, but on your bigger financial vision. Whether you’re a high-income earner, entrepreneur, or planning for early retirement in Canada, aligning your budgeting, income needs, and long-term financial goals is key to true financial freedom. At Canadian Wealth Secrets, we help you move beyond surface-level wealth optimization into deeper strategies like corporate wealth planning, tax-efficient investing, and financial systems built for entrepreneurs. From balancing salary vs. dividends to choosing between real estate vs. renting, and crafting a capital gains or legacy plan, your path to building long-term wealth in Canada depends on answering the right vision question first. Using practical tools like financial buckets and retirement planning strategies tailored to Canadian tax laws, you can achieve financial independence while protecting your lifestyle, business, and legacy.

Transcript:

Kyle Pearce: All right, Canadian wealth secret seekers, we’re back for a part two episode of the last episode where we were exploring a conversation that we had with a brand new discovery call client, where we were digging into the idea of borrowing. So leveraging to invest and there were some great questions, some complexity there, you know, whose spouse should be borrowing, I earn this much, they earn that much and doing all kinds of great deep thinking.

But as we revealed in that episode, there was a lot of missing pieces. ultimately today in today’s episode, we’re going to talk about the real questions that we should all be answering first before we get to the optimization stage. So let’s not waste any time. We’re going to dig in. John, from last episode, give us a quick little summary. What happened there and why? What inspired us to kind of have this episode to kind of really talk about the real pebble? or the real rock that these individuals should be exploring at this stage in their investment journey.

Jon Orr: For sure, for sure. So just as a reminder, this is the episode that precedes this one. So if you are saying, hey, I missed part one or I didn’t listen to part one, I, you can listen here because I think it’ll answer some really important questions, but go back and listen to that first part, which is one episode prior to this. Hit that one, then come back and listen to this one. But.

In that episode, we were talking with Daniel, we were talking about Daniel and Daniel approached us because he had one real main question. He was kind of saying like, I’ve maxed out my RSPs, I’ve got my maxed out my tax free savings account. He was making a good income to do those types, some of those things over the years. We summarize that he had about 400 or almost half a million dollars in income as a family to kind of do those types of moves. And

he was his main question was to start looking at like, how can I use the Smith maneuver, Smith maneuver, and then like, do I do I put it in my wife’s name, because she makes significantly less? Or do I do I put the investment in my name? And then we talked in that episode about the advantages, the advantages of, of doing one versus the other for tax purposes and thinking about the future. So we’re not going to specifically go into the answer to that question. That’s what that episode was. But what we

alluded to in that episode is that even though that was his main question, the question that we really needed the answer to and he needed the answer to as well is what we call the vision question, which is our stage one of our Any Healthy Wealth Plan, which is what are we trying, like what are we trying to do? And most times what we’re trying to do is trying to pad for the future, making sure we don’t run out of money, you know, trying to.

trying to be safe, trying to make sure that if I do retire, because this did stem from his retirement question. He wanted to know, like in retirement, if I plan to retire at 55 years old, then when I pull this money from either my account or my wife’s account, which one’s gonna be more tax efficient? And so that was the question we answered before. the retirement question is the real question he’s after. And this is the vision question, is like when will I retire?

In order for the question he asked about, you know, a tax optimization question, you first have to ask, am I on the right track to get there now? Because maybe it’s 55 isn’t the right answer, like the right number. Maybe it’s 60. Maybe you can retire early. Like maybe it’s, you have to completely revamp your budget. So these are really important questions that we do have to ask in the stage one so that we can then.

Optimize make make good moves take take these you know take this investment this way or or or move these structures around and redo this way so That’s what we’re to talk about here is Does he have enough or is he on the right track for that question even makes sense?

Kyle Pearce: Yeah, exactly. You know, because I think at the end of the day, it’s like we love optimizing here, everybody that listens to the show, anyone who reaches out to us for a call, it’s so funny because I asked them, are you a podcast listener? Or did you find us through like Google search or some other means? Because those who come through the podcast, it’s like right away, I know it’s going to be a great conversation. People are coming with great questions and they’re optimized and they’re trying to figure out how do we do it the best. But again, in

most calls, not just Daniel here, but in most calls, it’s the foundational pieces that we really need to focus on. So in the last episode, we were saying some of the things that we still don’t know are things like, what does the budget look like now? And then more importantly, it’s gonna be like, what does that, what do we anticipate that budget to look like when we hit that financial freedom number? while they do have this idea of like between age 55 to 57 to reach,

the option to retire, a lot of people, love that people are specific, they’re like not that they have to, but they just wanna know they could. That’s an amazing goal. So that’s about 14, 15 years off for this individual. However, the household has about 500,000 coming into it, okay? About 400 for one spouse, about 100,000 for the other spouse. And this is what triggered the idea around if I use Smith maneuver, which spouse should be holding those assets for later to make sure we minimize taxes. I love it.

bigger and more important question is, is it enough for us to sustain the lifestyle that we’re after? Nobody can answer that question except for the couple, right? So if you wanna maintain the exact same amount of cashflow that you have now, when I say cashflow, it doesn’t mean that you’re discounting the kids going to school or you’re discounting the fact that you pay more in…

We’re not even talking about that. Some people just like to see the cashflow stay consistent and then they start repurposing some of the money that was maybe going to kids, schools, sports, and all of those things into other things for themselves. For others, they’re happy to take a sort of, you know, more slim down lifestyle, right? They can maintain their lifestyle by still spending less and everything’s great. We also have inflation that we need to throw in there, but we’re not even going to go down that path today. We just want to talk about

The importance of if we are investing X amount of dollars, whether it’s through money out of my income that I’m going to put in the RSP and get a tax incentive in the now, having to pay that tax later, whether I’m going to be using Smith maneuver, using some sort of leverage strategy, it doesn’t really matter what you’re doing there. What really matters is, is it going to be enough based on my expectations around

invest the investments I make now that like that’s another huge question mark, right? Because we can’t guarantee what those investments are going to do. But you can definitely look at your own investment journey. And you can use some of those numbers to try to figure out what seems reasonable. And of course, we can go a little more conservative than and hope for better rather than say going aggressive and then coming up short. And that’s I think the real question.

that this couple wants to answer because here’s the thing, John, let’s say we spent all this time and we’re like, we’re going to borrow against the home, invest in these assets and we’re gonna make sure it’s in that spouse’s name because it’s gonna do X, Y or Z later. Even if it optimized that investment, if you came up short, it still doesn’t feel very good, right? Whereas on the other hand, once we solve these other questions about how much money we want or need,

That’s where optimizing really comes in. And that’s, think, the big idea here that we want to express to people is we often get bogged down in all the nuances and the optimizing much sooner than we really should. Right? So it’s like, my son loves racing. It’s like worrying about how much air is in the tires before you put the wheels on. It’s like, the cart doesn’t have any wheels yet. He does go-kart racing. It’s like, doesn’t matter.

let’s get wheels on the cart first and let’s see what’s going on there. And then we can worry about optimizing the air. If we sit with the wheels on the side and we optimize them, but we can’t get them on the cart, nothing’s going to move. And it’s not that helpful. So really it’s about reframing. And that brings us to our four stages. We talk about, it’s so easy for us to jump all the way to stage three, which is talking about like, what is it we’re going to invest in? How are we going to invest? How are we going to optimize those investments?

when we haven’t spent enough time in stage one, which is the vision planning, the what is it that we want? How are we gonna get there? What do we need to do to get there so that we can work backwards from those answers in order to help guide us through the other stages?

Jon Orr: So let’s dig in with him on stage one. what, you know, in a way, here’s a disclaimer as well. It’s possible he did this. It’s possible he knows these numbers. It’s possible he is doing all the right things for him to be working through optimization in stage three. At the time of the call, we didn’t know this, right? So we didn’t know that he had done this work and we were talking about solving that particular problem. if, and what we’re gonna do is walk through,

a rough numbers calculation, a rough numbers plan that you could also do to figure out are you on track to hit, say, your freedom number, your fire number or your retirement number or because most people have an idea of when they want to retire. And knowing that can help you reverse engineer whether you’re on the right track or not. let’s dig into that for Daniel here, taking some of the numbers that he communicated to us because, you know,

You we talked about like deciding whether we have the right amount of number the right amount now and we’re doing the right things to get there and and like him most people assume they are going to be able to retire at some point sometimes it’s like we know exactly sometimes it’s like well I think I’m sure I’ll be able to retire somewhere in there and you know it’d be fine now let’s use we’re going to use some rules rules of thumb here for for a sec as well

If you think about people who have pensions to find it, and it’s also possible, it didn’t come up in the call that he could have a pension that he didn’t disclose, right? So which means it’s like adding to the security. we’re gonna assume that he does not. But if you did have a pension, the nice thing about knowing about a pension is that this in a way this calculation has been done for you, right? It’s saying like, many pensions are.

hey, look, you’ve got 100 % of your salary right now. The day you retire, your next salary is all of a sudden 60 % of your salary. So you know these things going in, and you know there’ll be costs adjusted for inflation and living, in the cost of living. Then you can start to go, okay, all I have to do is go, do I spend 100 % of my income now? And is 60 % gonna be enough?

Like, and people go, when I retire, my kids will be gone. Maybe universities and colleges are paid for or I’m not handling that. My house is probably paid for my mortgage. It’s like, have to, this is where the budget comes in. You have to look at your expenses now and then project those expenses to the future and go at my projected retirement date, if I do the things I’m doing now.

Kyle Pearce: Yep. Not contributing to the pension either anymore. Yeah.

Jon Orr: Paying mortgage. Will the mortgage be paid off? Yes or no. If no, you’ve got to plan for that expense. If I have kids in university and I’m paying for that, what’s that expense then? You gotta know these things, right? This is part of the vision process is knowing what these expenses will be the day of retirement. You gotta know what your expense number is. And so that you can then go, all right, let’s project these numbers to the future and then go, is my 60 % going to cover that if you have a pension?

Sometimes you say yes, sometimes you say no. You have to say, what else am I gonna do to supplement this? And now let’s assume you don’t have a pension. So now what you’re gonna wanna do is go, and this person, so Daniel here, he reported, hey, he’s got this amount in RSPs, he’s got this amount of tax-free savings account, he’s got, you know, in both his name and his wife’s name. So what we did here is thinking about his assets and what we do is his current assets, we excluded his home.

And this is what you might wanna do too, because you have to go, okay, if I don’t have a pension and I’m gonna take all my assets that I’m gonna liquidate when I go to retire, I’m gonna stop contributing to them and I’m gonna start withdrawing from them. And so I’m gonna take all of those assets I wanna start withdrawing from. So I might exclude the value of my home and my asset calculation because I don’t wanna liquidate my home. And so you’re gonna take that, you’re gonna find the future value of that. You’re gonna project that all the way to the future and go.

hey, what does that look like? So I think when we did this for Daniel, we took his net, all his assets and we projected them without the value of his home. And I think what Kyle came up to like 4.5 million.

Kyle Pearce: Yeah, assuming that he kind of continues doing what he’s doing that we know about. And again, there’s some asterisks there. We don’t know all of it.

Jon Orr: Well, I think we did it as if he wasn’t doing anything. He stopped contributing to anything. We just took the assets and moved them forward.

Kyle Pearce: Actually, you are correct. Yes, that is correct. yeah, without putting any additional funds in, let that sort of quote unquote ride as is to go like, imagine you just kept living and you just let that stuff grow. We came up to about $4 and 1 half million, right? And I believe we had used 7 % as an average rate of return. Now, once again, it’s another asterisk. is that?

reasonable for him based on what’s been going on up to now, or is that reasonable moving forward, that’s really up for them to sort of decide. And we can help them with that by exploring what they’re investing in. But yeah, that’s the starting point. And then we looked at that and we said, John, if we use a basic, and I know it’s very basic, like we’re just a starting point here. You go.

use the 4 % rule and there’s even new articles out now that the 4 % rule is more like the 4.8 % rule seems reasonable and you know all of these things. We like to be conservative. You know when I run my own numbers, full disclosure, I usually use 3 % because you know why? I want to have too much. I’ll be honest. Like call me selfish. I want to make sure that I’m okay. But here we’re using 4 % and we sort of back map that and we go okay so if they stop contributing and they just let things ride, we’re looking at about $180,000.

Jon Orr: So he needs $180,000 of income to pull from that asset. if he, not need, but he pulls $180,000 using the 4 % rule, generally the 4 % rule saying you’re not gonna run out of money. So now you say, I’m using the 4 % rule, if my income now is $180,000, I’m good. Now here’s the rub for Daniel. His current income is 400-ish. So you’re going to go from four hundred and something thousand dollars.

Kyle Pearce: plus a spouse’s income of about 100. So 500,000 for the household before tax.

Jon Orr: Yeah, and so, right, to go down to 180. So this is the question. Now remember, we assume that he does nothing from here on forward. And why we did that is because we want to calculate what will we need to do to get there. Maybe we’re already there, and that’s that part. It’s like maybe we don’t have to contribute anything more, we just have to let it grow, and we’ll be fine. So now Daniel has to have the hard calculation. If I took all my expenses,

and I brought them forward. And I looked at my $180,000 in 15 years, if that’s my retirement date, do they line up? Is it enough to cover those expenses? And if so, pat yourself on the back. You’ve done everything up to this point right to cover your living expenses moving forward at your date of retirement. You do nothing from here on out and you’ll be fine. So now.

to go from 400 or 500K family income down to 200 is probably not likely for him. is because like he said, the rule of thumb for most people who have pensions is 60%. This is less than 50%. So is he willing to take a 50 % cut in his income to live his life and do nothing? So that’s probably not likely. So the question now, Kyle, I’m gonna pose to you is if that isn’t enough, what is enough?

which we don’t know because he’ll need to calculate that. And then let’s assume he wanted to maintain his 100 % of his income. What does he need to do now to make that happen? Because that’s the real questions before the stage three questions actually come out.

Kyle Pearce: Well re- Yeah. 100%. And I think the real question, as you had mentioned, is exactly that is like going, okay, so I have to know now and you had mentioned about bringing those expenses forward. And there’s sort of two big things that you have to do when you push those expenses forward, say, 14 years, 15 years out to retirement. One is, we have to consider which ones are going to stay and then which ones are going to go, right. So there’s some, you know, kids that are no longer around and so forth. Some people choose to say, let’s pretend that

I’m still going to have to support those kids or in your mind, you’re going, would much rather just have this extra cashflow just in case, right? Depends how defensive you wanna be. But as you project them out, you also have to use inflation, right? So you have to go average rate of inflation is at 3%. I mean, on average over the last 30 to 50 years, I believe is somewhere closer to four. There’s a dramatic inflation in the eighties, right? That pushes that up.

how aggressive do you wanna be on that number? So as you inflate those expenses and you push them out 14, 15 years, you’ll then know about how much are we going to need. Now we haven’t even talked about the fact that some of these buckets are gonna be taxed, the tax-free savings account’s not gonna be taxed, there’s capital gains, there’s all these other nuances, but those are optimization strategies that we wanna do.

when we know there’s enough, right? Like, and you never want to calculate, in my opinion, when you’re planning, you always want to calculate to have more than enough, right? So that there’s never an issue there. And that’s where a lot of this type of work really comes in. So that now, once we know what we need, we can then go back and we can say, Okay, so what do I need that $4.5 million? It net worth excluding my home?

What do I need that number to be if I’m going to use the 4 % rule or the 3 % rule or the 4.8 %? You know you get to decide right and of course that number is going to shift depending on what you’re invested in right? So these are things that we need to consider and I would argue the bigger question and probably the biggest question for everyone listening to this show right everyone listening to this show usually is.

here because they do want to optimize. They do want to have financial freedom, but it really all starts with what is it that I truly want? And remember when you decide what you truly want, that doesn’t mean that that’s all you’re allowed to get. This is one of the biggest pieces that I think we struggle with with why we don’t necessarily put that number down. We use vague terms like I want to get to a place where I can retire if I want.

Those are vague and it’s very difficult to quantify. So you wanna get to a number where you’re like, if I can hit this number, I know I’m there. And it doesn’t mean you have to stop. And it doesn’t mean that that’s all you’ll have. And it doesn’t mean that when you pass away, you have to have nothing left. You’ll notice in today’s episode, we’ve intentionally excluded the equity in the primary residence, right? So that home’s gonna be worth something. Why do we do that? Because we don’t want an.

This is personal, but we personally don’t want to feel as though we need to sell our home in order to fund our lifestyle freedom down the road, right? So that’s what we’re planning for. Everyone gets to plan it a little bit different, but it all comes down to stage one and what it is that you truly want, what you’re aiming for. And that means we’re going to also have to go right to what we’re doing now and going, what are we doing now?

What will happen if I continue doing exactly what I’m doing? Because remember the system you have in place is perfect to get you exactly what you’re getting the results you’re getting now, right? So think of that another way. If you are doing X, Y and Z and you continue to do those things, you’re going to get a specific result and you should figure out what that result should be based on variables that seem reasonable given what you know now.

That’s the type of work that we recommend for all of our clients to be doing. We assist them along the way and we’re more than happy to assist you along the way as well. We are here to reach out to you over at CanadianWealthSecrets.com forward slash discovery. If you’d like to have any essentially a coaching call around this idea ahead of time, we typically ask you to share some of what you’re doing currently.

Sometimes it’s very easy for you to send you off and give you a little bit of homework before we meet. Other times you’re ready to hop right into a call and take that next step. Head on over to canadianwealthsecrets.com forward slash discovery so you can book your call today. And if you’re curious to know where you’re doing well in your wealth building journey and where you can improve and where that, you know, real rock is that you want to be focusing on now, you should head over to our assessment.

over at CanadianWealthSecrets.com forward slash pathways and you can take our quick pathways assessment to get your next step report. All right, my friends, it’s been a blast. I hope you’ve enjoyed this episode. Do us a huge solid. Ratings and reviews go so far in order to reach more amazing wealth building Canadians just like you. We’re excited to hear from you soon. And just as a reminder, this information is for

educational purposes only and is not not financial legal tax investment or other advice. And Kyle is a life licensed and accident and sickness licensed agent and the president of Canadian Wealth Secrets Incorporated.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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