We all dream of kicking back one day, relaxing, traveling and spending a little extra time in the ol’ hammock. But a comfortable retirement isn’t something that just happens; it’s something that you need to work, plan and save for your whole life. The trick is to start early and be consistent.
If your life is a journey, don’t think of retirement as the finish line; there are still a lot of financial decisions you’ll have to make along the way. If you have people in your life that can help share their retirement experiences and advice, be sure to listen carefully. While there’s no replacement for life experience, we’ve put together these useful tips, meant to help you with your retirement planning and decision making:
1. Working is healthy.
Saving up for retirement can be a big challenge for many people, and not everyone reaches their individual retirement goals. This isn’t the end of the world. The need to continue working, full- or part-time, when you’re a senior is actually quite common.
Some of you may even choose this path, even if you’ve saved up enough. Why? Many people just love what they do. But also, work keeps people physically and mentally healthy, especially in old age. In many ways, it’s like exercise for your brain and gives you an opportunity to get out of the house and socialize.
So, as you move towards retirement age, you may want to consider if you can do what you’re doing now part-time in retirement. Or, if you have another passion or hobby you’d like to pursue as a ‘retirement job’ to make a little extra money on the side.
2. Set up your income stream.
Hopefully, you’ve been taking of full advantage of the tax benefits of a Registered Retirement Saving Plan (RRSP) throughout your lifetime. By the age of 71, you’ll need to transfer that money into a Registered Retirement Income Fund (RRIF) and start to withdraw it.
You can think of RRSPs as how you save up your nest egg for retirement, and your RRIF as how you spend that money according to a flexible payout schedule that you create. Remember, you’ll need to pay income tax on the money you withdraw from your RRIF.
You may also be eligible for supplemental sources of income, like an Old Age Security Pension (OASP), Canada Pension Plan (CPP), Guaranteed Income Supplement (GIS) or a private pension plan through your previous employer. So, get to know your benefits!
3. Keep on budgeting.
Just because you’ve reached retirement, doesn’t mean you should stop budgeting. For many, how much you can spend each month will be determined by the payment schedule of your RRIF and your government benefits. You’ll want to spend within these limits if possible.
You can get started by collecting all your expenses – your mortgage or rent, bills, healthcare and insurance costs, as well as non-essentials – and entering them into our handy budgeting map. It should help keep your spending on track. You also might want to do more travelling or take up some new hobbies in retirement, so don’t forget to factor these into the equation too.
4. Map out the road ahead.
Your housing and healthcare needs are going to change during retirement. There’ll likely come a time when you require more care. Sometimes that care is provided by loved ones, but more often it involves a nursing home with trained staff. This, of course, is another expense you’ll need to plan for.
The cost varies depending on the level of care you want or need. According to the Government of Canada, the average rent for a private room in a nursing home with at least one meal is $2,210 per month. It’s best to find a nursing home you like, determine the cost, get on the waiting list in advance and, of course, make a plan for how you’re going to pay for it.
Many people sell their home when it’s time to move into a nursing home to cover the ongoing expenses. Another option is a reverse mortgage which is a loan secured by the value of your home. Essentially, it allows you to tap into the equity of your home without selling it.
5. Protect your legacy.
If you haven’t done it already, you’re going to want to begin estate planning, which entails making a will that will dictate what’ll happen to your assets after you pass away. This is the cornerstone of your wealth transfer plan.
It’s important to note that, without a will, your estate doesn’t automatically go to your spouse and children but ends up being distributed according to the rules of your province. Added to that, without proper planning you could lose a large portion of your assets to capital gains taxes and probate fees.
We advise having a professional estate planner help you through the process. It’ll likely involve preparing a list of all your assets and subtracting any debts, then deciding how and to whom you wish to allocate what’s left over.
It’s also a good idea to let your family members know your estate plans and the reasons behind them now. This should hopefully give your loved ones’ peace of mind that your finances are in order and reduce the chances of a dispute after you’re gone.
Lot’s to consider, for sure! Luckily, we’re here to help guide you through it, every step of the way. If you need financial advice, don’t hesitate to give us a call at the True North Hub at 1-866-413-7071.
