|THE "NEW" RETIREMENT, PART 2
Thursday, September 15, 2011
Back in May I wrote on the “New Retirement,” which is basically
no retirement, as many seniors now work well past what used
to be the “standard” retirement age of between 60 and 65.
Some of this is planned, because some people simply like their
jobs and co-workers. They want to stay active as long as it’s
enjoyable, but perhaps working only part-time. For others, delayed
retirement is forced upon them, because they planned poorly
or started late, invested too aggressively near retirement and
suffered heavy losses, or didn’t get the big inheritances they
were counting on.
There are many other reasons too, of course. The past decade
was generally a terrible one for investing, with the exception
of resource and precious metals funds, which performed exceptionally
well. The result is that many seniors are working into retirement.
A recent TD survey showed that 31% of retirees are spending
more than they expected. There are increased costs associated
with travel and other social activities. In addition, medical
expenses have soared, even for people with defined benefit pension
plans, which have increasingly moved to more cost-sharing.
Food and gas have also risen more than expected and will likely
continue doing so as global demand continues to grow, increasing
commodity prices rapidly through the next decade.
Then, too, with advances in medicine, baby boomers’ life expectancy
has increased, raising the possibility that many will outlive
This can all be pretty depressing, and the million dollar question
is, “What can we do about it?” Several things, as it happens,
but as usual, some degree of sacrifice is needed. There were
no free lunches before retirement and none into retirement either.
You reap what you sow.
Plans are now in place to punish retirees further who take
their government pension benefits (Canada Pension Plan) earlier
and reward those who delay taking CPP until after age 65. Thus,
working into retirement can help you doubly, by making letting
your earn more and add to your investment/RRSP plans, while
increasing your CPP levels for every month you wait.
If you have a defined benefit pension plan, you have a big
advantage, because these pensions are generous, indexed to inflation,
and very difficult for the person without one to replicate by
saving on their own.
Take full advantage of RRSPs to save taxes and build a retirement
nest egg. Take advantage of the TFSA to give you another option
for tax-advanted income in retirement.
In retirement it’s not just the income you make that’s important,
but also the income you actually receive and can spend – your
after-tax income, in other words.
Use the Registered Education Savings Pland (RESP) and the associated
government grants to help your children save for their post
Try also to save through a non-registered (open) account if
possible. The more “pots of money” you have to access will make
your retirement lifestyle better and help you pay fewer taxes
into retirement. For example, if your pension income is $40,000
a year with CPP and OAS and you add $12,000 in RRSP income,
you will likely lose about 30% of the extra $12,000 as you move
up the tax brackets. But if you have the same pension income
and add $12,000 in TFSA income, you will be taxed on $40,000
of income, not $52,000.This is a huge difference.
Budgeting and monthly savings plans
I know it’s boring, but see where you are spending your money
and look at methods to cut costs, because that’s usually more
doable than increasing revenue/salary. After the budget process,
see how much you can invest every month. Talk to your financial
advisor and see where to best allocate the money to help you
best. After some months, you won’t even notice the money going
out every month.
If you are working full time, you simply must invest/save some
money systematically, or before you know it you’ll be 50 with
no savings, wondering and worrying how you will fund your retirement.
Don’t be that person.
Start early, and the power of compounding will help you achieve
your long-term investment goals.
Generic Mutual Fund Disclaimer
Commissions, trailing commissions, management fees and expenses
all may be associated with mutual fund investments. Please read the
simplified prospectus before investing. Mutual funds are not
guaranteed and are not covered by the Canada Deposit Insurance
Corporation or by any other government deposit insurer. There can be
no assurances that the fund will be able to maintain its net asset
value per security at a constant amount or that the full amount of
your investment in the fund will be returned to you. Fund values
change frequently and past performance may not be repeated.
Personal Opinions & Recommendations Disclaimer
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.