Tips for a Financially Secure Retirement
Tips for a Financially Secure Retirement
The transition from your working life into your retired life can be complicated. It’s not as easy as walking out of your workplace for the final time; there is a mental and financial shift that occurs and it is important to be prepared. If you are closing in on your “Golden Years,” Consolidated Credit Counseling Services of Canada has put together the following tips to ease the transition:
Pay off your debts – Stats-Can data shows one-in-three Canadians retire with debt. That means that two-thirds of Canadians don’t have to deal with monthly loan payments and the interest rates that come with them. Check out our Debt Learning Centre online for educational information on how you can retire debt-free. Paying off high-interest credit card debt on a fixed income can be especially stressful. The high interest rates add-up, especially on a fixed income.
If designing a custom debt repayment schedule and getting control of your debt before you retire seems overwhelming, seek the assistance of a trained credit counsellor. Don’t wait. One of the biggest mistakes consumers make is raiding their retirement funds to cover expenses and pay debts.
Put Your Mortgage Behind You – You don’t have to follow an expensive schedule or pay for a bi-weekly payment plan. Just send in what you can, when you can, and make sure you designate it as an additional “principal” payment. If your home is paid off when you retire, you may want to consider a reverse mortgage. You can continue to live in your home for as long as your health allows, while receiving a monthly payment. However, once you pass away, the equity in your home is turned over to the lender that holds the reverse mortgage.
Convert your savings to income – If you’ve managed to save money, research the options on how you can get the most out of it. Use a Registered Retirement Income Fund (RRIF) to generate income from the savings accumulated in your RRSP. Annuities will let you convert your savings into a guaranteed monthly income regardless of how the market performs.
Apply for government benefits – The Canadian Pension Plan can take nine months to process, so you should apply well in advance of retirement. Look into requirements for Old Age Security or Guaranteed Income Supplement to make sure that the income stream is ready when you need it.
Most people will transition from a singular income source to multiple sources during retirement, and this adjustment can often cause frustration. Be sure you are well versed in the details surrounding the following income sources available to retirees:
1. The Old Age Security (OAS) Pension – is a monthly benefit available to most Canadians 65 years of age or older who have lived in Canada for at least 10 years. You should apply for the Old Age Security Pension six months before you turn 65.
2. The Canada Pension Plan – is a contributory, program that provides you with a stable pension to build on for retirement. It also provides you and your dependents with basic financial protection if you become disabled or die.
3. Employer Pension – Talk with your employer to understand the full details of the benefits. You should be able to obtain information in writing that explains contributions and stipulations.
4. Registered Retirement Savings Plans (RRSP) – Allows savings for retirement to grow tax free in a savings plan registered by the CRA. An RRSP account is set up through various financial institutions. Contributions can be made to an RRSP up until December 31st of the year the contributor turns 69. Those contributions are tax deductible. Visit the Canadian Bankers Association’s website at www.cba.ca for more information.
5. Part-time Work – This may depend on what you plan to do in retirement, and how many hours you’ll be able to work. Just because you hit “retirement age,” doesn’t mean you have to retire. Some people prefer to stay active in their field and may be able to negotiate a reduced schedule. This will mean a continued income stream as well as a great way to keep the mind and body engaged.
Get Together – Couples who have been at odds with their financial goals, or who haven’t talked about money before retirement, may find things strained when their regular paycheques end. Because most people have to make lifestyle adjustments during retirement, it’s important for couples to talk about their situation regularly.
Decide Where You Want to Live – If you are planning to move after you retire, look into the cost of living in that area. If you are interested in a retirement community, check to see if living there will help or harm your ability to cut back on health care and other expenses. Learning the financial details of where you would like to live will help you budget your retirement savings more accurately.
Invest in Your Health – 37% of Canadians, age 85 and older, live in an institution. According to Statistics Canada, one in ten Canadians will need some type of long term care by the age of 55 and three in ten by the age of 65. People are living longer which is wonderful, but expensive. Assisted living facilities cost anywhere from $2800 to $9000 per month. Although saving for retirement is typically focused on what you are going to enjoy in your later years, be sure to focus part of your finances on the unexpected as well. Talk to your financial planner about ways to set aside a fund to cover health care expenses. Better safe than sorry.
Retirement should be about spending time with your family and doing the things you love – not worrying about if you will have enough money to survive. Retirement is a reward for decades of hard work. Although it can be stressful to think about the financial side of things, you’ll be fine with a little planning.