Word on the retirement street
Don’t believe everything you hear when making decisions for the years ahead
Retirees have no shortage of advice on how to save and plan, but it can be hard to separate the truth from misconception.
Here’s what three experts had to say about four popular retirementplanning fallacies: “I’ll have to move to something smaller” After the kids have flown the coop, selling the house is often considered the next box to tick on the proverbial retirement to-do list. But is it the most strategic decision? Not always. Especially not in markets like Toronto and Vancouver.
“Things have gotten so overheated that selling the family home, putting most of the money away, then buying something smaller really doesn’t make sense anymore. It simply costs too much,” said Michael Tanaka, a Toronto-area real estate agent with Royal LePage.
“A common refrain I hear from clients in this age demographic is, ‘Sure, I’d love to sell, but where would I go?’ ”
If you must sell but can’t bear the thought of spending the better part of your proceeds on something much smaller, then consider your other options.
Relocating to a smaller market or even to the family cottage can also be an excellent way of making your money go further.
“This would be a huge lifestyle adjustment, but financially it makes huge sense,” Tanaka said.
“One could live like a king for a couple hundred grand and the cost of living would be significantly lower to boot.” “I’m done working forever” The very objective of retirement is to stop working, but it’s becoming increasingly common for new retirees to seek out part-time or contract work. A 2015 survey by Sun Life found that only 27 per cent of its 3,000 respondents expected to be fully retired at age 65. Forty-one per cent said they really wanted to continue working, while 36 per cent felt they were likely to outlive their savings.
“Retirement is lasting much longer than people are anticipating. It could be 20, 30 years in length depending on when somebody retires,” said Bev Moir, a senior wealth adviser with ScotiaMcLeod in Toronto. “The option of even part-time work is helpful.”
If not for financial reasons, people approaching retirement should stay open to some sort of work as a way to give their lives structure.
“What are they going to do with their time? We’re used to spending the first two thirds of our life in structure,” Moir said. “I have this belief that it’s an opportunity to find meaning in their life. If they’re going to do something productive, they might as well be paid for it.” “My house will fund my retirement” A pre-retiree who owns a home in the GTA has most likely sat back and watched its value skyrocket in recent years. While it may be tempting to count it as the bulk of one’s retirement savings, experts warn that it’s better to treat it as only one part of the package.
“It is a consideration as a supplemental or complementary piece of someone’s retirement,” said Daryl Diamond, a Winnipeg-based retirement-income planning expert and author of Your Retirement Income Blueprint.
“To take the view that ‘I’m going to lean heavily or primarily on the equity of my home to fund the balance of my retirement’ — that is advice we would never give. It would have to be an extreme set of circumstances.”
“Real estate cycles can be long,” Moir said. “People could be counting on a certain value in their house and may not be able to realize it. Real estate is an illiquid investment, so it can take time to sell.”
“You have to fund many years of retirement and you still have to live somewhere. The proceeds may not be enough to support someone over a 20- or 30-year retirement.”
A 2015 survey by Sun Life found that only 27 per cent of its 3,000 respondents expected to be fully retired at age 65
“I’ll stop investing my money” Watching paycheques trail off can feel alarming. You’ll want to safeguard your money but that doesn’t mean you have to stop investing. Advisers say it’s about adapting your strategy — not ending it.
“This transition from accumulation years to the income years is not simply a continuation of the same thing,” Diamond said. He explains that the fifth out of six steps outlined in his book is called “aligning investments to the plan.”
“In our practice, we’re trying to establish a plan — an amount of aftertax cash flow that a couple or individual is going to need in retirement — and then we try to reverse engineer it . . . How do we most tax efficiently create this number on a monthly basis?”
However you shift your investment strategy, Diamond advised that it’s important to start planning and adjusting early.
“If I’m flying into Pearson Airport, they don’t wait for the plane to get right above the airport and then do a nosedive to land. They do a nice, gradual progression,” Diamond says. “(It’s ideal) for us to have a window of positioning these assets so that we can make the changes meaningfully — one to three years in advance of when people will start withdrawing.”