According to a new retirement poll from CIBC:
- Thirty per cent of retirees were caught off guard with unexpected expenses
- The most common expenses included health care, renovations and home repair, financial support for children/grandchildren and tax bills
- Deepening the impact of these unexpected expenses, many respondents stopped working before they had planned, cutting short their cash flow. Thirty-three per cent had to retire because of health problems and 22 per cent retired at the request of their employer
“No matter what your stage of life, the best approach to keeping your budget on track and avoiding the need for credit is to plan ahead. Keep your debt load low and your cash flow high so that you can navigate any bumps in your financial road without devastating consequences,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
“The respondents from this survey feel that their retirement hindsight is 20/20 and that they would engage in more detailed planning for their retirement to avoid any retirement surprises,” says Schwartz.
If your retirement is still a few years away, here are some elements to consider in your planning:
Pay down debt
You should be using the years approaching retirement to pay down debt and accumulate wealth, not the other way around. In order to build up adequate savings and to keep yourself from being vulnerable to the impact of unexpected expenses, you’ve got to avoid the “buy now pay later mentality” especially when it comes to larger purchases that can take longer to pay off, like cars or other major purchases.
You limit yourself a great deal if you are close to retirement with a considerable debt load. What happens if you have to stop working before you planned because of health issues or because your employer forces early retirement, as happened to a number of respondents in this survey? Debt is often taken out with great intentions to repay, but frequently the plans get derailed by unexpected events.
Envision your retirement (and the costs)
What does your retirement look like? What does your lifestyle look like? Do you plan to travel or engage in hobbies that carry an expense? You need to calculate what you’ll need to have in order to maintain the lifestyle that you plan, so that you’re not caught off guard.
Estimates vary as to how much you’ll need for your retirement, so it is best to consult with an expert.
Think about the taxes
Don’t forget that you’ll be paying taxes on the money that you withdraw from your RRSP and possibly from other retirement savings as well. While your taxes in theory may be lower than what you’ve paid during your working years, you still need to consider that cost and factor it in.
Anticipate higher medical costs
Unfortunately, it is common that the older you get, the more health problems you encounter. While you may be covered by the Government for a number of costs, there are still a lot of medical expenses that you could potentially be on the hook for.
Do you currently have benefits through your employer? Do they extend into retirement? What are the limitations? Know all of the particulars before you retire so that you can include medical expenses in your retirement savings targets.
Is your current debt load interfering with your retirement plans? Take steps today to pay it down so that you can enjoy retirement tomorrow. Call us at 1-888-294-3130 or try our free online debt analysis.