Retirement Planning

How to ensure your future is secure and comfortable

If retirement is just around the corner or still many years away, planning for your retirement is so important. Retirement planning is on your mind so read on… you may just find some interesting ideas that you can incorporate into your plan.

The first question that comes to mind is “how much money will I need for my retirement”? Underestimating could mean difficulties during your retirement years so how can you ensure that you are accurately determining the amount you will need?

First of all you need to determine what sort of lifestyle you want to live during your retirement years. If you dream about taking many exotic vacations and seeing the world, you are obviously going to need more set aside than the individual who is content to stay at home and enjoy family and friends.

How you want to spend your time is going to determine how much money you are going to need, so you are going to have to take a little time to ask yourself a few questions. When do you want to retire?

  • Do you plan on downsizing your home?
  • Will you sell your expensive city home and move to the country?
  • Will you be moving to a retirement community?
  • Will you rent or own a vacation home?
  • Will you spend time in warmer climates? How long?
  • Do you plan on any major purchases or renovations to your home?
  • Will you travel? How often? How far?
  • Will you stay in costly hotels or will a B&B do?
  • Will you work part-time while retired?
  • Will you become more active in your community?
  • Will you get involved in volunteer work?
  • Will you be supporting or helping to support any family members?
  • What hobbies will you pursue? What will they cost?
  • Will you join a golf club? Or buy a boat?
  • Will there be much dining out? Theatre? Movies?
  • Do you want to spend your capital over your lifetime or do you want to leave an estate?

I’m sure you get the picture. A dollar figure could be placed on each of the above and depending on your selection for your retirement would determine the amount you need.

If it is already starting to look like you might not have enough based upon your current situation, don’t worry, there are numerous ways and strategies that can help you make up for lost time. This is an all to common situation for many Canadian families. With kids to raise, a mortgage to pay, piano lessons and groceries most often there was very little if anything left over for investment purposes.

If you still have 15 to 20 years before retirement you are not likely in serious trouble. But you will need to get started! You may be earning more today than ever, kids are grown, the mortgage is significantly paid down and even have a second income coming into the household. If this is your situation then you may have the ability to start building up your reserves for retirement. Begin contributing as much as you can to your RRSP or open investment and consult with your financial planner on how to maximize your returns in a tax efficient manner.

If on the other hand you’re closer to retirement and your RRSP savings are deficient, you’ll have to take some drastic action. The luxury of time is no longer on your side. And the closer you are to retiring, the more drastic the action will need to be. You should be able to build your savings to an acceptable level if you adopt some of these ideas:

  • Delay retirement until you’re more secure. Working one year longer than you had planned can make a great deal of difference. For example, making $10,000 annual income while retired is like having $200,000 in savings paying you 5%.
  • You may have to save at a greater rate
  • If possible, you may have to pay down your debts faster
  • You can look for alternate sources of retirement income, like working part time or starting a new business
  • Cut back on spending
  • Downsize the house or car
  • Sell the cottage
  • Change your lifestyle expectations

These strategies may also be required if you have lived through market downturns, periods of unemployment or any other circumstances that put an unexpected drain on your savings.

Be very careful not to over-react to the market downturn – either by getting into riskier investments in hopes of making up for what’s been lost, or by retreating to overly conservative investments that won’t give an adequate return. You still need a balance. And that balance needs to be based upon your investment objectives and risk tolerance.

If you should decide to continue working during your retirement, it may be comforting to know that over half of all Boomers plan to do the same.

Why you may need less than you think

Many financial experts say you’ll need up to 70% of your pre-retirement income to maintain your lifestyle in retirement. But, barring health problems and other unplanned “disasters” , many other experts say you may need a lot less.

By the time you’re ready to retire, your kids will probably be grown and financially independent. Your mortgage will probably be paid off. And you’ll probably be out of debt.

Your day-to-day expenses are likely to drop noticeably. You’ll spend less on lunches, on gasoline or public transportation, and probably less on clothes and entertainment. You’ll also be paying less in income tax and of course you won’t be making CPP/QPP or EI contributions.

In a sense, retirement is like exchanging time for money. And having all that time can also help you save money because you’ll be able to take a couple of hours to make your own repairs to the toaster, the vacuum cleaner or the front porch.

The point is, because many of the expenses you used to have will be gone, your disposable income may not fall as much as you think, a good fact to keep in mind when you’re doing your planning.

If any one of the following describes you:

  • You are in your 40’s and have yet to get started on retirement planning and saving.
  • You have placed all of your trust in the government to provide you with retirement funds.
  • You’re anticipating that you will be able to just keep right on working.  You’ve been putting your kids’ education ahead of saving for your own retirement
  • You’ve been moving your savings into higher risk investments in anticipation of moving things along more rapidly.
  • You’re assuming your living expenses will drop more than they really will.
  • And finally, you haven’t been proactive in taking responsibility for planning and assuring that your retirement will be comfortable and secure.

If you’re having trouble with any of these or other retirement planning stumbling blocks, why not get some help from an expert. Give us a call at 250-863-9426 and let’s get together to discuss your best course of action.

Your Estate Plan

Transferring assets

  • Wills – The cornerstone of any estate plan and the most common method for assets to be transferred. The main purpose of a Will is to describe how you want your assets to be distributed. Make sure you have your will in place and reasonably up-to-date.
  • Gifting assets before death – Without doubt the easiest way to transfer assets is to give them away while you’re alive. While gifting to charitable causes can lead to tax benefits, other gifting can create tax liabilities.
  • Testamentary trusts – A testamentary trust takes effect at death and becomes part of the Will. It allows ownership of assets to be transferred while control of the assets is determined by the provisions of the trust.

Avoid family squabbles after you’re gone

The purpose of an estate plan is to provide comfort and security for one’s family. But sometimes the opposite can result. If disagreements arise over terms of the estate plan, the end result can be worse than having no plan at all.

It’s not uncommon for estates to be challenged by unhappy family members. People may feel slighted or there may be confusion because of badly worded clauses or incompletely expressed intentions. And sometimes what was once a good and fair provision in a plan can become out-of-date over time.

The delays caused by challenges can run into years and the legal costs can severely deplete the estate, leaving little for the beneficiaries but bad feelings and damaged relationships.

That’s why your estate plan should reflect a mutual understanding of how you and your family see things. A good first step toward achieving that is to hold a family gathering and get everyone involved in the creation of the plan.

Before the meeting, let everyone know what you think the plan should be like and ask for feedback. Encourage open and honest communication among family members and keep in mind that money is a sensitive topic and when people discuss it, they often mask their true feelings.

Pre-Planning to save your family grief

No one likes to talk about his or her own funeral. Logically, we know it’s going to happen someday but emotionally, we just don’t accept it. The problem is, when you don’t plan for it now, you can create a difficult situation for those you leave behind.

The death of a loved one is one of life’s most stressful situations. In order to cope, people should be allowed to mourn and express their grief.

Unless there is a plan, loved ones are not able to do this. At a time when they should be mourning and comforting each other, they’ll be involved in making decisions about the details of the funeral.

Pre-arranging your funeral prevents this from happening. It removes the financial and emotional burden from loved ones during a difficult time and spares them the necessity of dealing with many painful details and decisions.

In short, pre-arranging your funeral is one of the most loving and caring things you can do for your family.

How about establishing a power of attorney

Most people believe that if they were ever to become mentally or physically incompetent the family would be able to step in and act on their behalf. Well it’s not quite that simple. In fact it can get very complicated if a Power of Attorney has not been set up.

Many people believe that a Will is the only legal document they need. They don’t think of the possibility that they could become incapacitated due to illness or accident and need their affairs managed on their behalf.

Many believe that their spouse can automatically assume the responsibility. However, without a Power of Attorney, any financial accounts that are not jointly held could not be accessed by your spouse.

An enduring or continuing power of attorney can solve the problem. It gives your attorney or any other person you designate the authority to manage your affairs. It can be broad reaching in scope, covering all the things you would normally do, or it can be narrow, e.g. limited to bank accounts or investments only. It can also be a simple power of attorney for a limited time, as when you are away from home and require certain matters to be handled.

Insurance: A multi-purpose estate tool

Insurance can be a very helpful tool in estate planning and can be used in a  number of ways:

You can use life insurance to pay projected estate taxes. Here’s how this strategy works.

Let’s say you have assets today that are valued at $200,000. And let’s assume that in 20 years those assets will be worth $500,000. That’s a capital gain of $300,000, half of which – $150,000 – would be subject to capital gains tax.

If the rate of taxation were 30%, that means the estate would have to pay a tax of 30% on $150,000 or $45,000. This could be a difficult burden and might require a loan or selling off of some of the assets.

A better solution would be to take out an insurance policy with a benefit payable of $45,000 – the expected tax burden. The total cost in premiums of such a policy would be relatively small, for argument sake, let’s say around $5,000.

When you die, the $45,000 benefit would be paid to your heirs tax-free. They would then use it to pay the $45,000 taxes on the estate.

This is a very simplified example but it shows how this strategy works. In this case, you spend $5,000 to save $45,000 in taxes for a net saving to the estate of $40,000.

Three types of insurance to protect your financial health

Critical Illness, Disability and Long-term Care insurance are three kinds of insurance that are quickly gaining popularity among our aging population.

The first two – critical illness and disability insurance – are designed to protect your finances if you should become critically ill or disabled.

Thanks to modern medicine, chances of surviving such adversities are getting better and better. But recovery is often lengthy and expensive, involving losses to income and extensive costs for care and treatment. Simply put, you may survive but your finances may not.

If you’re like most, you probably believe that insurance for your car, your home, your life and your health is all you need. But without critical illness and disability insurance, you’re leaving a gap in your financial security.

Long-term Care Insurance is becoming more popular because more of us are living longer – statistics say we’ll probably get to 80 or better. That’s the good news. The bad news is that about half of us will need some form of long term care.

Long Term Care Insurance provides a daily benefit or care if you require the services of a long term care facility or professional assistance at home.

It helps you maintain your independence and financial security by giving you the resources you need, even in the face of a serious health setback. At the same time, it gives your children an alternative to them providing you with the care and protects your estate for your beneficiaries.