Peter Boys, Boys Financial Services

“Pay Cheques & Play Cheques” in Retirement

retirement

As legions of Canadian baby boomers approach retirement there is an urgent need for them to develop a customized retirement plan to ensure enough money to fund their retirement. Consider this simple question: Which day of the week do we spend the most money? For most of us it’s Saturday.  But when you retire, every day is Saturday!

The first step is to determine what income you need in retirement. “Pay cheques” cover the basics such as a roof over your head, groceries, a vehicle, clothing, taxes and utilities. Then, what you might need to cover travel, hobbies, volunteering, eating out, sports or entertainment, etc. are called “Play cheques”.

Next add the monthly income you will get from CPP and OAS.  As well, what steps you need to take to protect your savings from inflation, the silent thief in retirement. After you can strategize a plan to help you develop a source of additional guaranteed pension style income to supplement the government plans or other pension income you might have. You may even consider working part time in retirement to cover the bills.

Longevity is a must to consider in your retirement plan.  “Longevity risk” is the biggest risk most retirees face; that of living too long and outliving your money. For example, for a 65 year old couple, the husband can expect to live to 85 and the wife to 88.   There’s even a 25% chance that one of them will live to age 97 or even 100 years old.

Increasing longevity becomes a risk multiplier, because of things like market meltdowns, inflation, unexpected withdrawals such as having to bail out a child, becoming sick or disabled, the need for long term care, leveraging one’s home for income, etc. So how do we take longevity risk off the table?

This is where annuity income could come in, where you exchange a lump sum of cash for a lifetime of guaranteed income. For example, a 70 year old couple with $300,000 to invest would get $1,438 a month income with only $143 of that taxable for as long as they both lived. You would have to earn 8.5% interest a year in a GIC to get the same after-tax rate of return.  If this seems like an option that would work for you, look into investing prior to the end of 2016 as CRA is changing the rules for annuities and the rate of return will drop about 20% as of January 1st 2017.  Anything before 2017 will be grandfathered in under the old rules.

Looking into having some level of long term care insurance coverage to allow the option to die at home or in a private care facility with dignity, is something to consider.  Lastly, if you have to leverage your home equity, do so wisely with options such as an account, rather than the expensive reverse mortgage options that are heavily promoted to seniors.

And, remember to develop your “Retirement Happy Factor” which comes about by interacting with friends and family, working or volunteering part time, with adequate retirement income to ensure having a stress free lifestyle in retirement!

Don’t wait until you’re ready to retire to figure out your plan, work with a trusted advisor to help crunch your income needs and develop your custom plan. Remember that this plan should be revisited from year to year as things change. There are numerous investment options available to help Canadian retirees protect their retirement nest eggs. Make sure you do the research to protect yours.

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