Making Retirement Last
Retirement used to be for people who were too old to work.
Now that we're all living much longer, healthier lives, retirement is just another stage of life. Planning for this period is essential if you want to make your finances last your entire life.
All the financial planning you've done throughout your life comes to fruition when you retire. But you don't get to stop planning and budgeting just because you've stopped going into the office every day.
In some ways, retirement has made your budgeting job more manageable: now you probably have a fixed amount of money to work with. But in other ways, it's harder than ever. For Canadians who are living longer, it means retirement savings need to last longer. It's more important than ever to make smart financial decisions.
It's time to take a financial inventory and figure out exactly what you have and how you're going to make it last as long as you do. Assess your income, assets and liabilities -- along with your assumptions and predictions of interest and inflation rates. This is your financial scenario, and it is the basis you'll use for creating a new retirement budget. Revisit the Budget Worksheet that you created earlier in your work life and adjust it to your new reality.
Knowing these specifics will help you determine which, if any, assets you should sell. It will also help you decide what types of investments you want to make. Financial experts often suggest that retirement savings should be invested in more conservative funds. Younger investors, after all, have more time to recover from stock-market losses and to rebuild savings. If you lose a large portion of your investments in the stock market, that will have an immediate and detrimental effect on your financial well-being.
A certified financial planner can be very useful in helping you to determine what investments are right for your financial situation. But be careful whom you trust with your money. Some financial planners work on a fee basis, as opposed to commission, and are therefore not financially vested in your picking one kind of investment over another.
Estate planning is the process of providing for the orderly transfer of your assets to your chosen beneficiaries; making sure that your estate is distributed the way you want it to be. There are no estate taxes in Canada. On death in Canada there is a deemed disposition for capital-gains purposes. A house that is someone's principal residence, then, is exempt from capital gains on disposition, including disposition on death. An estate-planning lawyer can help guide you through the complex laws regarding estate taxes.
Other aspects of estate plans deal with the creation of legal documents such as a will, power of attorney, so-called "living wills" and more, which are explained further in the legalities of elder care.
In addition to taking inventory of your financial worth, you should take note of those death benefits that may help you provide for your beneficiaries. Among the most common death benefits are:
- CPP/QPP When you pass away, your estate may be eligible to receive a lump sum of up to $2,500, depending on how much you contributed to Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) in your lifetime. In addition, your spouse may qualify for monthly survivor's benefits of up to $450. To qualify, your spouse must apply within one year of your death. Both the lump sum and the monthly benefits are taxable.
- Old Age Security Upon your death, your OAS payments cease. However, your spouse may now qualify for the surviving spouse's allowance or an increase in spousal benefits. Use the Retirement Calculator to determine how much your spouse may qualify for.
- Company Pension Plan To determine how much you may qualify for, you will have to ask your employer's human resources department or look at your benefit statement. The benefit will likely depend on whether or not you are retired. If you are retired and receiving a pension, then one of three things will happen: your payments will stop, they will continue for a set period or they will continue until the death of your surviving spouse. If you would like to have the payments continue until the death of your spouse, then see your employer about having a joint-survivor option. If you are not retired, then you will likely be eligible for a lump sum (which can be deferred if it is not needed yet), as well as any unpaid wages and vacation pay.
- Worker's Compensation If your death occurs while working, your spouse may be eligible for a lump-sum benefit or monthly benefits.
Where will you live after retirement? This decision will be based on many factors, including your financial situation, your physical abilities and your emotional attachments.
Financial concerns may influence you to sell your home and relocate. The sale of a home may provide extra income to increase your retirement budget. You may want to live in an area with lower living expenses. Or, if you are in good financial shape, you may want to move into a nicer home.
You will also need to consider how long you will be able to physically maintain your home.
How do you feel about where you live? Is it close enough to your family and loved ones? Think about what makes you feel comfortable, how your neighbourhood is changing, how the weather affects you and other factors that you can't put into a calculator.