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More than RRSPs: Boomer retirement strategies

Friday, January 28, 2011

The grey tidal wave that is the Baby Boomer generation is beginning to reach retirement age. As of January 2011, more than 10,000 baby boomers a day will turn 65, a pattern that will continue for 19 years. Many are not saving enough. Some that were on track have been hurt by the market correction of 2008 and the historically bad decade for investors that just ended. Some never started for a variety of reasons – lazy, not disciplined, too much consumption, and procrastination are a few that come to mind.

Others are relying on a job/career to last until they choose to quit. The reality is that more often than not, you get told when to retire. It’s usually not on your terms or timetable. Other factors come into play as well, like sickness and/or disability to do the job you once did. Many people will be forced to work until past 65 as a result of their earlier decisions and lack of planning and discipline.

When I started with Investors Group over 15 years many clients said they were looking “to retire early and comfortably.” While this and other fancy slogans like “Freedom 55” sound nice, you just don’t wake up at age 65 and find $500,000 in a suitcase all ready to be utilized to help supplement Canada Pension Plan and Old Age Security cheques. It takes years of effort and discipline to build up a substantial nest egg. Some may be “saved” by an inheritance, but with medical advances and better survival rates for major illnesses, most won’t get this money until they are very old themselves, so don’t count on that as your way out of planning.

The question, then, is what you can do to help make your dollars last so you won’t outlive your retirement funds.

Delay CPP benefits

It has always been advantageous to delay taking CPP, but recent changes to the plan are making it even better to delay your CPP benefits if possible. By delaying your benefits by 12 to 18 months, you could get $100 a month more for as long as you live, which could be 25 to 30 years. That turns into a big chunk of change, even though many of us think, “What can I do with $100?” Remember that $1,200 /year times 20 years is $24,000.

Downsize from your big home

There are a few good options here. The easiest is to sell your home in the city and buy a cheaper condo or townhouse nearby and invest the difference, which can be substantial. This can also work to remove debt (mortgage, line of credit, etc.) and move into retirement debt-free. There will be added benefits of not having to do basic maintenance like yard work, snow shoveling, roof repairs, and so on, and not having to the tools to keep the house in shape. You will still be close to family and friends, and this life change will have minimum disruption.

Move to a smaller town. This option is one that I predict will become very popular in the next 20 years. Cost savings can put $200,000 or more in your pockets for buying a similar home. If you downsize, the savings could be even greater. There are a many other benefits to living in a smaller city: gas savings (everything is closer); health benefits related to more walking; no parking meters; cheaper buses and other public transport; being part of a community, something that often is lost while living in a city; and knowing the people in your local grocery store, bakery, pub, and café. Many of these smaller communities (10,000 to 50,000 population) have great facilities for seniors, including hospitals, and many have decent proximity to the big city when you want to visit family or friends.

Consulting/job sharing or working part time

Many of my clients are taking this route for a wide variety of reasons. For some, it’s more for social and professional reasons – they like their job and the people they work with. For others, it’s based more on monetary concerns. They are worried they will outlive their capital or they want to bump up their nest egg to give them more opportunities to travel and enjoy other varied recreational pursuits.

Every year you delay your retirement is not only one more year for your nest egg to grow but also a year in which you aren’t depleting it. The benefits are twofold. Some work a year or two longer to reduce (or better yet eliminate debt), buy (or better yet pay off) a new vehicle. It does make good sense to buy a new(ish) car just prior to retirement to give you five to seven years of reduced vehicle costs.

Follow good financial strategies

Another step you can take on the run-up to retirement is to reduce (not eliminate, because you also need growth) your exposure to equities. Don’t go into retirement with a portfolio of 100% equities, unless you can stomach a 35% drop in your investment portfolio at the point in your life when you have less time to make your money. Make sure you have 20% to 50 % in fixed-income or balanced investments, which should give you some protection from corrections.

As I’ve emphasized, it is also wise to reduce or eliminate debt prior to retirement.

Take full advantage of the Tax Free Savings Account (TFSA).The more money you have in various forms (pensions, RRSPs, TFSAs, and open/non-registered investments) simply gives you more options heading into retirement. If all your nest egg is tied up in RRSPs, the funds come out as income, and you’re taxed at your marginal rate on everything you withdraw. Open/non-registered accounts and a TFSA offer much more palatable terms upon redemption, and allow you to redeem those monies prior to your RRSPs, thus giving you more time to defer potential tax on withdrawals from registered accounts.

If you’ve done some planning and stuck to the plan, I’m sure you’ll enjoy your retirement fully, knowing the effort and discipline it took to stay with it for 20 to 30 years. As I often say,” retirement is a marathon, not a sprint.” Good luck and good planning!



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The foregoing is for general information purposes only and is the opinion of the writer. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. However, please call the author to discuss your particular circumstances.