Stay Wealthy: The Me­ter Is Run­ning

Four ways to en­sure you don’t out­live your money

ZOOMER Magazine - - CONTENTS - By Gor­don Pape Gor­don Pape pub­lishes the In­ter­net Wealth Builder and In­come In­vestor news­let­ters. Visit his web­site at­ing­

IRECEIVED AN EMAIL re­cently from a reader who wants to spend his last penny on the day he dies. He knows he can’t take it with him and he doesn’t want to leave any be­hind, it seems. “I am male, age 61, and have a va­ri­ety of health is­sues,” he wrote. “So I am look­ing at my port­fo­lio and try­ing to fig­ure out how I could spend it all plus my pen­sion in 20 years or sooner. My ques­tion is can I re­li­ably pre­dict I will be dead by then? Ac­tu­ary stud­ies just give av­er­ages, and my GP and car­di­ol­o­gist don’t fore­cast an end date any­time soon.”

Talk about ask­ing me to gaze into a crys­tal ball! Can he re­li­ably pre­dict he’ll be dead in 20 years? Of course not, un­less he wants to con­tem­plate sui­cide. If his doc­tors can’t give him an es­ti­mate of his life ex­pectancy, I cer­tainly can’t. New med­i­cal break­throughs are be­ing an­nounced all the time. The health prob­lems he’s ex­pe­ri­enc­ing now may be eas­ily treat­able in five years. If he blows all his money, he’s go­ing to end up liv­ing on wel­fare.

Al­though I can’t pro­vide an an­swer to this spe­cific ques­tion, it raises a larger is­sue that many boomers have to deal with: how to en­sure your money doesn’t run out be­fore you do.

In 1960, the life ex­pectancy of a new­born child in Canada was 71.13 years. By 2015, that had moved up to 82.14 years, an in­crease of more than a decade. And the older you are, the greater the like­li­hood of liv­ing to a ripe old age. Sta­tis­tics Canada num­bers pub­lished in 2016 show that a Cana­dian woman aged 65 has a life ex­pectancy of 21.6 years while a male of the same age can plan to be around 18.5 years. Of course, those are just av­er­ages. You may live much longer.

So how do you plan for that? Here are four tips.

1 De­ter­mine how much in­come you need Peo­ple who have dili­gently saved for re­tire­ment may feel they’re very well off when they stop work. They may have RRSPs worth sev­eral hun­dred thou­sand dol­lars, a paid-off house, an in­vest­ment port­fo­lio and, if they’re lucky, a pen­sion.

The temp­ta­tion may be to spend some of that nest egg on travel, home ren­o­va­tions, help­ing the kids or a va­ri­ety of other things, es­pe­cially in the early years of re­tire­ment. Think twice be­fore you make a de­ci­sion.

You’re go­ing to need that money to main­tain your stan­dard of liv­ing for the rest of your life. So be­fore you make any com­mit­ments, fig­ure out how much you’ll need each year to achieve that and match that fig­ure against your as­sets.

Don’t as­sume that your costs are go­ing to drop in re­tire­ment. A re­cent ar­ti­cle in the Wall Street Jour­nal quoted re­tired ge­ol­o­gist Steven Fech­ner as say­ing: “The big re­al­ity is that you will spend 100 per cent of your pre-re­tire­ment in­come af­ter you re­tire.” In his case, al­though he saved money on com­mut­ing and cloth­ing, the costs of travel, health care and fam­ily ac­tiv­i­ties more than off­set that.

My ad­vice is to work out an an­nual bud­get based on 90 to 100 per cent of your pre-re­tire­ment spend­ing. It’s bet­ter to err on the side of pru­dence when mak­ing long-term plans. If you find af­ter a few years that you don’t need that much, you can ad­just ac­cord­ingly.

2 Use re­al­is­tic ex­pec­ta­tions We can’t pre­dict how long we’ll live but we can rea­son­ably guessti­mate how much we can ex­pect to earn an­nu­ally from our in­vest­ments. This is an im­por­tant con­sid­er­a­tion for most re­tirees. Un­less you have a blue-chip de­fined ben­e­fits pen­sion, a large per­cent­age of your re­tire--

ment in­come will come from in­vest­ment re­turns in your RRSP, RRIF, TFSA, de­fined con­tri­bu­tion pen­sion or non-reg­is­tered ac­count.

In the cur­rent in­vest­ment cli­mate, a rea­son­able es­ti­mate from a di­ver­si­fied (both stocks and bonds), low-risk in­vest­ment port­fo­lio is six per cent an­nu­ally. So if you have $500,000 in­vested, you should bud­get a be­fore-tax an­nual re­turn of $30,000. Add that to any de­fined ben­e­fit pen­sion in­come and pay­ments from the Canada Pen­sion Plan and Old Age Se­cu­rity to get an es­ti­mate of an­nual cash flow.


Don’t dip into cap­i­tal if you don’t need to Spend­ing part of your sav­ings on a big-ticket item that of­fers in­stant grat­i­fi­ca­tion may come at a heavy cost later. Of course, you want to en­joy life but be sure you can af­ford it.

Con­sider the cou­ple with $500,000 in sav­ings. That’s a lot of money, so they de­cide to spend $50,000 of it on a lux­ury cruise. They have a great time but when they re­turn home and run the num­bers, they find their re­main­ing cap­i­tal will only gen­er­ate $27,000 an­nu­ally. They have spent $3,000 a year of fu­ture in­come in one shot. Now they’ll have to live the rest of their lives on a more re­stricted bud­get. For some, the ex­pe­ri­ence will be well worth­while – just make sure the num­bers work.

4 Be will­ing to leave some­thing be­hind Don’t be like the reader who wants to spend it all. Be pre­pared to leave some­thing be­hind. If you don’t have chil­dren, choose a favourite char­ity. By do­ing this, you’re pro­tect­ing your­self. You’re en­sur­ing that there is a fi­nan­cial cush­ion in place if you live long past your nor­mal due date. And a lit­tle gen­eros­ity never hurt any­one.

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