Vancouver Sun

Plan­ning early for re­tire­ment pays off



Be­ing aware of what you’re spend­ing, and what your spend­ing pat­terns are will help you de­cide if you need to for go some­thing to re­duce ex­penses.”


For so many se­niors, re­tire­ment is the time to kick back and re­lax af­ter decades of all their hard word. Travel, time with fam­ily, golf: it’s a life of leisure — at least, that’s the dream.

In fact, money is a ma­jor con­cern for to­day’s re­tirees. Nearly 60 per cent of re­tired Cana­di­ans are car­ry­ing some form of debt, ac­cord­ing to a CIBC poll. Al­though re­tired Cana­di­ans hold less debt than those still work­ing, they’re also less likely to be tak­ing steps to ac­cel­er­ate their debt re­pay­ment.

Pay­ing down debt gets that much harder dur­ing re­tire­ment when peo­ple tran­si­tion to a fixed in­come. Monthly pay­ments must come from pen­sion earn­ings or from re­tire­ment sav­ings — both of which were in­tended to serve as re­tire­ment in­come. As a re­sult, re­tired Cana­di­ans may carry debt for longer than they an­tic­i­pated, in­cur­ring higher in­ter­est costs and af­fect­ing their cash flow.

Even more alarm­ing is that Cana­di­ans over the age of 65 have the high­est in­sol­vency and bank­ruptcy rates in the coun­try, ac­cord­ing to a 2011/12 re­port by the Vanier In­sti­tute for the Fam­ily. Se­niors were 17 times more likely to be­come in­sol­vent in 2010 than they were 20 years be­fore, the re­port found. Dur­ing that same pe­riod, the in­sol­vency rate for peo­ple aged 65 and up in­creased by 1,747 per cent.

With­out a reg­u­lar pay­cheque com­ing in, it is more im­por­tant for peo­ple to live within their means. The good news is that with a lit­tle leg­work, peo­ple can en­ter their golden years in the most fis­cally stable po­si­tion.

“It’s im­por­tant to have a very good, firm fi­nan­cial plan in place,” says Salt­spring Is­land’s Karin Miz­gala, co­founder and CEO of Money Coaches Canada. “You have to have very good con­trol over your cash flow and truly know what’s com­ing in and what’s go­ing out. Typ­i­cally in re­tire­ment peo­ple are op­er­at­ing on less in­come than what they had be­fore, so it’s im­por­tant to es­tab­lish cash-flow pa­ram­e­ters and en­sure you’re stay­ing within those pa­ram­e­ters so you don’t in­crease your debt.”

The top ques­tions Van­cou­ver fee-only fi­nan­cial ad­vi­sor Ngoc Day gets from se­nior clients are: Will we out­live our money? And can we af­ford to main­tain same life­style we’re used to?

“You have to pri­or­i­tize your ob­jec­tives,” says Ms. Day, who’s with Macdonald, Shymko & Com­pany Ltd. “Be­ing aware of what you’re spend­ing, and what your spend­ing pat­terns are will help you de­cide if you need to forgo some­thing to re­duce ex­penses. That can’t hap­pen if you haven’t got a clear bud­get or a clear idea of what you’re spend­ing on.”

It’s also cru­cial that se­niors have a re­al­is­tic idea of what their ex­penses will look like in re­tire­ment. There’s a pre­vail­ing no­tion that ex­penses are high­est in the ear­lier years of re­tire­ment, when peo­ple are tak­ing month-long cruises or vis­it­ing mu­se­ums in Europe, and that ex­penses then dwin­dle as in­di­vid­u­als be­come less ac­tive. In re­al­ity, those later years can end up be­ing the most costly, par­tic­u­larly if peo­ple need home care or long-term care. Sub­si­dized nurs­ing homes ex­ist, but wait­ing lists can be long. Pri­vate nurs­ing homes in B.C. cost any­where from $2,275 to $9,500 per month, ac­cord­ing to Sun Life Fi­nan­cial.

Then there are costs for prescripti­on drugs and den­tal and eye care.

“In some ways, the big­gest is­sue fac­ing se­niors is the health is­sue,” Miz­gala says. “With peo­ple liv­ing longer, we’re deal­ing with the new re­al­ity of the ag­ing body and what that means as far as peo­ple’s fi­nances are con­cerned.”

Making mat­ters more com­pli­cated is that the tax im­pli­ca­tions of in­come and in­vest­ments in re­tire­ment are com­plex and wide-rang­ing. Plus, the age of el­i­gi­bil­ity for the Old Age Se­cu­rity (OAS) pen­sion and Guar­an­teed In­come Sup­ple­ment (GIS) is chang­ing from 65 to 67. This change will be im­ple­mented be­tween the years 2023 and 2029. (Any­one aged 54 or older as of March 31, 2012 — those born be­fore April 1, 1958 — will not be af­fected.)

With­drawals from dif­fer­ent in­vest­ments have dif­fer­ent tax con­se­quences, so se­niors need to en­sure that their with­drawal plan is tax-ef­fec­tive.

“Check with a tax con­sul­tant to see how much you should be with­draw­ing from your RRSPs, con­vert­ing all or part to RRIFs, of course, be­cause you don’t want to leave your­self vul­ner­a­ble to big­ger taxes and OAS claw­backs when you’re 71,” says South Sur­rey cer­ti­fied fi­nan­cial plan­ner Bet­tina Sch­narr of Hollis Wealth. “Se­niors should ask their ac­coun­tant about pen­sion split­ting to lower their taxes too. Dur­ing re­tire­ment, preser­va­tion of cap­i­tal is key, as is tax-ef­fi­ciency.”

There are many tools and re­sources avail­able on­line to help peo­ple pre­pare fi­nan­cially for re­tire­ment. They in­clude:

• RBC Re­tire­ment De­signer

• Ser­vice Canada’s Cana­dian Re­tire­ment In­come Cal­cu­la­tor

• TD Canada Trust Re­tire­ment Sav­ings Cal­cu­la­tor

The ear­lier you start saving for re­tire­ment the bet­ter. But even if the fu­ture seems daunt­ing, tak­ing things step by step can help you move for­ward with con­fi­dence.

“No mat­ter what your sit­u­a­tion, if you have a plan, you al­ways feel more em­pow­ered and more in con­trol,” says Miz­gala. “It’s never too late to start plan­ning for the fu­ture.”

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