If things were ideal, you would start saving for retirement in your 30s or 40s, or possibly even sooner. But the reality of it is that, in today’s environment, for many it simply isn’t a possibility.
If one day you realize that retirement is far too close for comfort, you may wonder if it’s too late to start. I firmly believe that it’s never too late. For someone in their 50s, you could have 15 years or more to prepare. If you are willing to get serious about it, there is still time.
Your income level is likely at its high point in your career, ideally with some room to grow. You have unused RRSP and TFSA contribution room, and with some effort and creativity, I can help you fill those up. Fifteen or twenty years of tax-sheltered savings, and annual tax refunds, can go a long way in funding your retirement.
Your children should be on their way to some form of financial independence, and you should work toward paying down your mortgage. In the low interest-rate environment that we have been in for more than 10 years, this is somewhat less critical than it has been in the past, but the lower the mortgage you take with you into retirement, the better.
You just need to apply a bit of discipline to save and don’t give up. Despite the recent market ups and downs, a properly diversified portfolio will produce you consistent long-term returns.
Once you are in your 60s and 70s, there are additional challenges for retirement planning. You will want to be particularly careful about taking on too much risk in the hopes of a near-term windfall. There are other potential options to create an income stream that you may want to consider.
An annuity can provide you with income for the rest of your life. It can be a very effective product for people who are in good health and are worried about outliving their money. Life annuities purchased outside of a registered plan can receive favourable tax treatment, as only a portion of the income is taxable.
Any concerns with annuities regarding premature death resulting in leaving little or nothing for your family or heirs can be addressed by insuring the annuity for a period of time that you choose. With this option, it is possible to fully protect your original deposit into an annuity, allowing the original deposit to go to the heirs of your choice upon your death.
An all-to-common position for people at this stage of life is to be “asset rich” and “cash poor”. In these cases, you can potentially look at the equity in your home as a possible income stream. There are a number of ways to accomplish this including down-sizing your home, a secured line of credit (interest rates are currently very low), or a reverse mortgage (more expensive than a secured line of credit, but easier to obtain).
If you have a large permanent life insurance policy, it could also potentially be used as collateral for a secured line of credit.
The reality is that if you haven’t been saving, you may have to work longer, spend less, and budget more aggressively. But before you give up on your retirement dreams, book a meeting with me, and we can look at all of the options available to you. There may be more options than you realize.
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For more information, or to review (or start) your retirement plan, book an online meeting with me.
Defined Benefit Pension changes are coming!
Defined Benefit Pension changes are coming later this year. Will this impact your pension? Would it make sense to retire before the changes come into effect?
Canadian plan sponsors (i.e., the companies) are finding it increasingly difficult to fund Defined Benefit (DB) pension plans, which used to rely exclusively on employer contributions to provide benefits to employees. With an aging population, interest rates at historical lows, and inconsistent investment performance, additional contributions are needed to adequately fund DB plans. Adding to that, the current economic instability can make finding the required extra contributions very challenging.
In recent years, many companies still offering DB pensions are insisting that employees contribute to the pension plan to help keep the pension plan sustainable. Most DB pension plans are underfunded, which opens the door for potential reductions (or worse) in pension payments to retirees who choose to allow their former employer to manage their pensions after retirement.
Most employers are aggressively switching to contributory pensions, sometimes referred to as capital accumulation plans. Both sponsors (the companies) and participants (the employees) contribute money to these types of plans, which is often then left to the mercy of the markets. It can be extremely difficult, if not impossible, to determine what your pension may be worth when you retire — regardless of how much you have contributed. Some wonder whether capital accumulation plans will provide sufficient retirement income — will you have enough money to last the rest of your life?
Defined Benefit pensions are also affected by the market turmoil as well as the historically low interest rates.
The Actuarial Standards Board of Canada (www.asb-cna.ca) determines the commuted values of DB pensions. They are implementing changes to the valuation formula to reflect lower interest rates, an aging population, and market instability.
What will this mean to you?
No two pension plans are the same, and many companies have more than one pension plan. Some will be impacted more than others, but they will all be impacted.
Get your most recent pension statement and book a no-obligation, no-cost initial consultation with me and I’ll help you understand your options.
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For more information, or to review your pension plan options, book a review meeting with me.
Half live paycheque to paycheque, poll finds
A third of people can’t afford to pay off their credit card
More than half of Canadians live paycheque to paycheque and more than a third have no retirement savings, boosting the pressure to work longer, according to a new poll by accounting firm BDO Canada Ltd.
The survey of 2,047 Canadians found 53 per cent had little disposable income and that debt is overwhelming for a quarter of respondents. An increasing number – 57 per cent versus 53 per cent last year – are carrying credit card debt, the survey showed. A third of people can’t afford to pay off their credit card balances while 40 per cent owe non-mortgage sums of more than $20,000, BDO said.
“Affordability and debt challenges continue to weigh on Canadians,” Doug Jones, president of BDO Canada’s Financial Recovery Services practice, said in a statement. “Over time, the cumulative effects have a significant impact on financial goals.”
The rising anxiety comes even as Canada’s inflation rate remains around the Bank of Canada target of 2 per cent a year and stock markets are enjoying their longest bull run for more than a decade. But fears of a recession have grown in recent months with signposts such as an inverted yield curve where longer-term interest rates are less than shorter terms. And housing prices have resumed upward climbs in much of Canada despite market-cooling legislation last year.
BDO’s poll showed gen-Xers are the most indebted cohort when compared to millennials and baby boomers, with 44 per cent of indebted gen-Xers owing more than $20,000. That may not come as much of a surprise because the 35-to 54-year-olds are in the prime of their house-owning years with heavy mortgage burdens. Baby boomers may have paid off their mortgages while millennials have yet to buy into the expensive housing market in large cities.
Thirty-eight per cent of gen-Xers had no retirement savings compared to a third last year while almost half said they can’t afford to save for post-work life, according to the survey that BDO calls its Affordability Index. It was done in August with the help of Vancouver-based polling firm Angus Reid.
“An increasing number of Canadians in their 40s and 50s are financially stretched and unprepared for retirement and unexpected costs,” Jones said. “This can lead to a greater reliance on debt to support living expenses.”
A rising number of Canadians believe that younger generations will have to work longer than their older cohorts to make ends meet, 82 per cent in this year’s poll versus 75 per cent last year. The amount also increased in those saying that even if they save, they won’t have enough for their retirement. That answer rose to 69 per cent from 64 per cent in 2018.
The research also found women suffer more than men and their challenges are mounting. Lack of income increases debt for 35 per cent of women compared with 28 per cent of men. Three quarters of women also struggle to save for major purchases compared to 70 per cent of men, and a third battle to pay for groceries versus 24 per cent of men, the poll found.
A growing number of women are living paycheque to paycheque – 59 per cent versus 54 per cent last year – and more said they have no retirement savings – 43 per cent versus 35 per cent in 2018, according to BDO.
“Recent years have been challenging for Canadians,” BDO said, adding its index “points to more challenges ahead. In order to change course, Canadians should be actively seeking ways to improve how they balance their debt obligations and future financial goals.”
September 30, 2019, Colin McClelland, Financial Post
Two thirds of Canadians say they want to know more about the logistics of their retirement
The majority of Canadians want more help understanding the aspects of a successful retirement, according to a recent study from Toronto-based Mackenzie Investments.
The Retirement Study, conducted for Mackenzie by Pollara Strategic Insights, found that 72% of respondents (and 74% of baby boomers) feel there’s an opportunity for financial advisors to help clients better understand all components of retirement planning.
Sixty-one percent of Canadians (47% of boomers) want to learn more about what is involved in transitioning toward retirement, with less than a quarter saying they are familiar with the logistics, including how the Canadian Pension Plan works, when and how to convert RRSPs to RRIFs, and how they’ll be taxed in retirement.
Additionally, only 53% of respondents (67% of boomers) say they are confident in their ability to manage their investments during retirement.
Carol Bezaire, vice president, tax, estate & strategic philanthropy, Mackenzie Investments, said the value of advice takes on “added importance” in areas such as tax and estate planning and optimizing investments as clients approach retirement.
“Canadians in general, and boomers in particular, are seeking advice on the details involved in making the successful transition to retirement. This provides Canada’s financial advisors with a tremendous opportunity,” said Bezaire.
The Pollara survey was conducted with an online sample of 1,518 adult Canadians from Sept. 18 to Sept. 20, 2019.
By: Maddie Johnson, November 13, 2019, IE: Investment Executive
One-in-four seniors fear they might run out of money before they die
An alarming number of seniors are afraid as to whether they can afford long-term care and stretch their retirement savings, according to a national survey commissioned by the Financial Planning Standards Council (FPSC) and Credit Canada.
The Seniors and Money Report asked 1,000 Canadians over the age of 60 how they felt about debt, income, financial planning and work.
The survey revealed that nearly half of Canadians aged 60 and older say they have at least one financial concern.
For example, one-in-four seniors surveyed fear they might run out of money before they die, while an equal amount are concerned they won’t be able to pay for long-term care. Other fears include never being able to pay off their debt, not having enough money to retire, having to sell their house or needing to depend on children for financial support.
The report also discovered that Canadians are extending their working years. Specifically, one-in-five Canadians are still working past age 60, and 6% are working to age 80 and above.
The reasons for doing so include:
- Three-in-ten can’t afford retirement (including 13% who say they’ll never afford retirement)
- One-in-eight have too much debt
- Approximately 28% don’t have enough savings
- Twelve per cent are still helping their children financially
- Nearly a third continue to work because they love their job
The report also demonstrates that fewer Canadians are able to reply on company pension plans. For example, 50% of Canadians 80 and older list a company pension plan as a source of income, while the percentage is 41% among those 60 to 69.
“Times are changing, and many seniors haven’t planned for or anticipated the life and financial circumstances they now are facing,” says FPSC’s consumer advocate Kelley Keehn, in a statement.
“Some seniors may feel embarrassed or that it’s too late to ask for assistance when it comes to their finances,” she adds. “Truthfully it’s never too late to get started.”
Additional findings from the study include:
- Men are significantly more likely to be employed, have a company pension plan or have investments as their current source of income than women
- Four-in-ten of those who have a company pension as a source of income also hold investments
- Three-in-ten Canadians age 60 and older with children are supporting them financially (including 22% of those 80 and older)
- Overall, Canadians aged 60-years and older are more likely to be supported by the government (73%) than any other form of income.
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