Financial Friday #137: Got the Retirement Planning Blues?
It’s a fact; retirement planning is overwhelming and easy to kick down the road! There are so many “ifs” in the planning process it’s hard to know where to start, and just getting by for the near term may be taking up all of your time… and most of your money!
However, it’s also a fact that lack of planning and getting started too late is the number one regret for retirees. To that end, we have assembled a list of quick tips and busted a few myths to help get you going on the essentials and highlight some additional factors you should be considering.
There is a magic amount for a savings target or a simple rule of thumb on to base your retirement plan.
The truth is there is only YOUR number, which results from making a plan based on the kind of retirement life you envision, carefully calculating how much it might cost, and creating a saving and investing roadmap to fund it. Our retirement cashflow calculator is a great tool to help your planning.
CPP, OAS and other government programs will get me through
. The average CPP payment at age 65 is only around $750 (max is $1254) and OAS is $685. They are both indexed for inflation.
Saving as much as possible is the only retirement plan I need.
This might work if you are super disciplined, but it does leave a lot to fatalism! Having a written plan will help you track progress and let you know when it’s time to make adjustments. Putting the savings away is only half the battle, you also need a plan to invest and track the growth of your nest egg as well as one for how much money you will need post-retirement.
A financial advisor is the golden ticket.
A financial advisor can offer information and advice, but they don’t do miracles. They may also play a limited role (ie. investing) and their market returns may not be any better than what you could get with a lower cost DIY solution like a robo-advisor or all-in-one ETF. A financial coach or financial planner offers more comprehensive planning and are good choice if you don’t have time or motivation to dig into retirement planning on your own.
The value in my home is going to make up for my lack of saving.
It might if house prices remain elevated, but how will you get cash for day-to-day out of your home? You could sell it and rent or downsize, rent a part of it (or do short-term rentals like AB&B), or get a reverse mortgage. There are options and limitations to each so do your homework! For example, reverse mortgages are currently running over 8% and you can only borrow to 55% of value.
I will spend a lot less after I retire.
Another maybe! Some of the big debts should be gone (mortgage, kid’s college) but your day-to-day will depend a lot on where you live and how you plan on keeping yourself busy. Your home may be paid for, but it could need major repairs down the road and property taxes go up continuously. As for entertainment, are you content with the length of the Canadian golf season in your area, or do you hope to spend a couple of the winter months polishing your game down in Arizona?
I will be free as a bird and can move somewhere cheap.
If you currently live in Vancouver or Toronto, you have options. If you currently live in rural Saskatchewan, your choices are definitely more limited! Moving from one place to another within Canada may yield savings, but it may also put you far away from familiar people and places that will keep you happy and content during retirement. Moving to a “cheaper” country overseas sounds exotic, but it’s a huge commitment if you are thinking permanently, and you have to consider health and safety issues, cultural differences, and the fact you may simply get tired of it! You may need to (medical reasons?) or want to (homesick?) come back at some point. Despite the cold, we think Canada is a great place to be!
High interest rates will let me live safe and secure on the interest and keep my capital intact… I’m set!
If you are nearing retirement and age and looking for safe and secure investments, being able to buy a GIC at over 5% is a nice option that we haven’t had for a long time. However, there is no guarantee that we are entering a long-term high interest rate period. A quick look at this graph
shows the BOC overnight rates was under 2% for 13 years from 2009 until earlier this year! With the average retirement now stretching 20 to 25 years, economic conditions are likely to change, and you need to plan accordingly.
The factors affecting your retirement planning are constantly changing — savings rate, inflation, investment performance, interest rates, real estate values, retirement age, job loss or illness, etc. Some degree of uncertainty will always be there but knowing your options and laying down a roadmap to get you started and stay on track will help alleviate a lot of that uncertainty.
Trouble brewing for fixed-payment-variable-rate mortgages
75% of variable rate mortgages in Canada have "fixed" payments that are far too low given interest rate hikes, and some lenders are now demanding substantially higher payments and/or adjustments to the amortization period to cover the higher interest cost.
Retirement in Canada is becoming less secure
"Canadians are underestimating the impact of longevity, inflation and health-care costs on their retirement savings, and that’s making the country a less secure place to retire"
Read this and join us next week
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