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Eleventh-hour discussions around contributions to registered retirement savings plans (RRSP) can also be an opportunity to get Canadians to focus on their retirement goals and, in turn, boost savings if they find themselves falling short, writes Joel Schlesinger in this Globe Advisor article.
The recent 2023 Ageing in Canada Survey from the National Institute on Ageing (NIA) found that among Canadians 50 and older, only about a third of participants who intend to retire could afford to do so at their desired time.
“We don’t necessarily understand what’s going on below that number,” says Dr. Bonnie-Jeanne MacDonald, the report’s co-author and director of financial security research for the NIA at Toronto Metropolitan University. “Is it that they’re more aware of and worried about the risks – such as long-term care costs?”
Or perhaps clients are struggling with the rising cost of living, fearing they cannot save enough to retire at all. Advisors are helping clients address these concerns, potentially involving a retirement planning rethink, says Anthony Maiorino, vice-president, director and head of RBC Family Office Services at RBC Wealth Management in Toronto.
“Even clients with significant financial resources are concerned,” he notes.
Read the full article here.
For more from Globe Advisor, visit our homepage.
What should Lester, 56, and Portia, 55, do with a $1.3-million inheritance?
Lester and Portia have an enviable lifestyle – self-employed, good income, a nice house in a desirable city and two children. Lester is age 56, Portia 55. Their children are 17 and 20.
Lester, who works in a creative field, has a company from which he draws a salary of about $180,000 a year. He also pays Portia $60,000 a year for bookkeeping.
“Recently my wife was the beneficiary of an inheritance of $1.3-million,” Lester writes in an e-mail. “With this windfall comes the desire to be responsible and informed.” The question they face now is how to use the money. They have a $974,000 mortgage, so that would be a good place to start.
Lester’s done some reading and has what he thinks is a good plan. They’ll open tax-free savings accounts. They’ll top up their RRSPs. They’ll open TFSAs and first home savings accounts for their children.
They’ll make a lump-sum payment on their mortgage of $200,000. They plan to retire when Lester is 65 and Portia is 64. Their retirement spending goal is $120,000 a year after tax. In the meantime, they plan to do some work on the house, buy a new vehicle and take a big, once-in-a-lifetime trip for the whole family.
In this Financial Facelift, Jason Heath, an advice-only financial planner at Objective Financial Partners in Markham, Ont., looks at Lester and Portia’s situation.
Want a free financial facelift? E-mail finfacelift@gmail.com.
How delaying retirement can significantly boost your total income
Putting off retirement for just a little while can significantly boost your retirement income, says Frederick Vetesse. This week, Vetesse, former chief actuary of Morneau Shepell and author of the PERC retirement calculator (perc-pro.ca), considers the situation of a couple who are both age 60 today and are contemplating retirement here.
In case you missed it
CPP is one of the best retirement assets money can buy, despite what the skeptics say
Based on the often-scathing replies to my recent Twitter/X thread, many people seem skeptical of the Canada Pension Plan (CPP), writes Benjamin Felix, in this personal finance article. I think it’s one of the best retirement assets that money can buy.
CPP is a social insurance plan designed to contribute to retirement incomes in Canada. Under new enhancements, CPP will eventually replace 33.33 per cent of pre-retirement income up to a maximum, improving the retirement income adequacy of Canadians.
The enhancements are funded by an increase in required CPP contributions, which will be fully implemented in 2025. In total it is estimated that the 2025 combined employee and employer CPP contribution will be $8,848.
The reasons for distaste about these sizable CPP contributions centre on people thinking they could do better with private savings and investments – but this perspective demonstrates a lack of understanding of what CPP provides.
The CPP benefit is an inflation-indexed annuity – the only true risk-free asset for a long-term investor.
To better understand three of the most important risks that retirees face, read the full article here.
For more on the CPP, read our ongoing series, Planning for the CPP, in which Globe Advisor reporter Brenda Bouw explores the decisions behind when to take CPP benefits and reviews different aspects of the beloved and often-debated government-sponsored pension plan.
For more from Globe Advisor, visit our homepage.
A deep dive on the OAS clawback: How many people are affected, and how much does it cost them?
The second-most hated tax measure targeting seniors is actually a niche problem – but that niche is growing fast and will continue to do so for some time, says personal finance columnist Rob Carrick in this Opinion article.
The Old Age Security recovery tax, known widely as the OAS clawback, starts to kick in when a recipient makes more than $90,997 in 2024. A little more than 500,000 seniors were affected by the clawback, or 8.3 per cent of total OAS recipients, according to the most recent data from Statistics Canada.
That may sound like a modest number, but it’s enough to rank the clawback second on the retiree’s fear-and-loathing scale, behind mandatory annual withdrawals from registered retirement income funds. Expect more clawback exasperation ahead.
With an aging population, the number of people paying the OAS recovery tax is rising quickly. Also, financial strains on the federal government’s finances will eventually require some fresh thinking on the cost of paying OAS. A more aggressive clawback is one way to contain costs.
Read the full article here.
Retirement Q&A
Q: I’m 10 years into retirement and want to reassess my financial situation as the interest rates make me nervous. What should I think about?
We asked Jonathan Rigby, senior wealth advisor, portfolio manager, ScotiaMcLeod, to answer this one.
With the rapid rise of interest rates over the past two years, it’s understandable to feel nervous. It’s important to first understand why you might be feeling this way. For example, have rate hikes made you nervous because you’re carrying debt while retired? If so, you may want to consider prepaying some debt with gains in your portfolio. Or could it be the impact rising rates have had on your portfolio? A review of your portfolio and interest rate sensitivity would be prudent to understand how you’re mapping towards your goals, not only financially but for your desired lifestyle. Perhaps higher inflation is also added to your concerns?
Whichever it is, updating your wealth plan with an advisor is key, since it will help you uncover potential blind spots such as cost of living increases and their impact on your cash flows. A current wealth plan should factor in a higher inflation rate than what was used 10 years ago as well as a realistic rate of return expectation for your portfolio. As we continue to live longer, and sometimes not in optimal health, we also have to consider the impact rates might have on our future goals including long-term care needs or your legacy wishes.
It’s critical to continually update your wealth plan to ensure you reflect the effects of changing rates and inflation on your specific situation and factor in any changes in your lifestyle. It will also hopefully leave you feeling less anxious and ready to enjoy many more years of retirement.
Have a question about money or lifestyle topics for seniors? E-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Sign up for our weekly Retirement Newsletter.
