Bob and Mary have been planning their retirement for decades.
It started with small deposits when they were a young couple. Those deposits eventually increased as they made more money and their family grew. With an inheritance and a couple of pensions also put towards their retirement, the couple expect that they are in a good situation. In about five years, they plan to retire, with Mary leaving set to end her teaching career and Bob leaving with a full pension at a local oilfield company. For the most part, they are happy with their current situation.
But after speaking with family friends who retired three years ago, they realized there may be some factors they hadn’t considered.
The average Canadian is expected to live longer than ever before. At age 65, the average is now 86.6 years for females and 83.5 for males, according to Statistics Canada. That means the average Canadian who retires at 65 years old is looking at 20.2 years of retirement. Another friend they had spoken to had hoped to retire at 55, but when he factored in the need for expenses for another 30 years, he decided to work and save for another five years.
If they remain in good health, Bob and Mary hope to spend their retirement years travelling to warmer destinations in the winter and spending time at the lake with family in the summer. It’s not lavish by any stretch, but it’s something they want to make sure they have a plan in place for.
They aren’t alone. A recent study showed that 59 per cent of retirees are worried about making their retirement savings last through their retirement years. Yet, it does change the way couples like Bob and Mary have to approach their retirement planning. After all, the added years means the money has to last longer.
The good news is there are some options. And after discussing with a financial planner, Bob and Mary now have some choices to consider.
Old Age Security (OAS) eligibility has been a hot political topic lately, with the federal government announcing they would keep it at age 65, rather than proceeding with the previously announced gradual increase to 67.
That doesn’t mean you need to start taking payments right way. In fact, deferring for five years could increase your payments by 36 per cent. Each year you hold off, your payments will go up by seven per cent annually.
If you are turning 65 in 2016 and are eligible for the full OAS pension, you’d receive approximately $550 a month. But if you wait until you’re 70, your payments will increase to about $825 a month (assuming the plan increases by 2% per year for inflation).
Of course, Bob and Mary would need to feel comfortable enough to put off the payments in the meantime.
Safeguard your income
A longer life means more years in retirement. If you are expecting to fund those years with payments from a pension plan, your Registered Retirement Savings Plan (RRSP), and other investments, you can take steps now to safeguard that income.
Revisit your investment strategy
Another factor consider is paying for increased health costs. Increased savings can go a long way when those unexpected expenses arise.
This is where a quality financial advisor can make a huge difference. Many people make their contributions and wait for their investments to grow. However, if you can stand a little risk, especially in the years leading up to retirement, you may see some accelerated growth. With a strong plan in place that growth can give you a nice cushion you otherwise wouldn’t have had.
We’re here to help. Contact us and a financial advisor can help to see what works for your situation and goals – so you can get more in retirement.
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You may already use an RRSP to invest for the future. But did you know there’s another option – the Tax-Free Savings Account, or TFSA.