Retirement is an exciting time and we're sure you have endless amounts of plans. Whether it's travelling, spending more time with your grandkids, relaxing on your cottage porch or finally having enough time for hobbies, we're sure you can’t wait for it to start. But to make these dreams come true your finances need to be in order.
We have five retirement planning tips to help you make sure you can fund the lifestyle you want.
1. Can you minimize your financial commitments?
Heading into retirement you should seek to minimize your financial commitments. This basically means you should try to reduce your debt obligations to zero, if possible. Focus on paying down credit cards and paying off your mortgage and line of credit. By eliminating debt, this will automatically increase your cash flow and you will be able to direct your money toward more enjoyable things. Since your income will likely be lower in retirement than it was in your working years you want to spend your precious cash on what makes you happy, not on paying interest. Consult a Scotiabank advisor for debt consolidation or refinancing options that can help you reach your goals sooner.
2. When is it time to downsize?
With rising property values across Canada, you're probably wondering if now is a good time to cash out. The answer? It depends. So many Canadians close to retirement have equity locked in their homes, it can seem like a missed opportunity to leave this source of funds unchecked. You might be thinking about selling your home, and then renting or buying a condo or a detached house in a lower-priced area. But you have to consider your particular lifestyle: are you attached to the amenities of the neighbourhood? Where do loved ones live? Will you be happy in a smaller town or in a condo? Do you have limited savings and need to easily access your money? It's a personal decision to downsize and there's no need to rush into it. Don't sell until you're confident in your next steps and have weighed all the pros and cons.
3. Is your portfolio working for you?
Your investment portfolio should change as your needs change. When you're younger, for example, it's more common to have a higher risk tolerance with investments to try to capture maximum growth. But for Canadians close to retirement, that might be too risky and you may want to transfer your money to different asset classes, such as fixed-income investments. At the same time, there's some risk associated with carrying too many fixed-income investments. If the interest rate on your bond, GIC or high interest savings account is lower than the rate of inflation you are losing purchasing power every year. The goal is to achieve a risk level with your portfolio that minimizes the risk of downturn, while still providing reasonable income and growth.
Balance is the key. Consult an advisor annually to obtain the right asset allocation for your age and risk tolerance.
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Reviewing your investment strategy
4. Does your plan include unexpected costs?
You may have a retirement plan in mind but make sure you factor in unexpected costs.
Consider emergencies like the following:
- Health care costs - even though Canadians enjoy universal healthcare there are still things you need to pay for, like prescriptions, massages, physiotherapists, dental and vision. Consider taking out insurance or budgeting for these expenses
- Personal emergencies - you just never know what will happen, such as emergency travel costs to visit a loved a one, a child losing their job and needing support, a natural disaster, a car accident etc.
- Fraud - there are so many scams aimed at seniors these days you have to be very careful. From automated calls, to romantic scams on internet dating sites, to identity theft - always be on the lookout. Visit the Scotiabank Security Centre to learn more about how you can protect yourself.
Having a healthy cash fund set aside for emergencies is essential in retirement.
5. When should you start taking CPP and OAS?
While you can start taking CPP between 60 and 70 and OAS between 65 and 80, there are tax and income considerations that may make you want to consider taking them earlier or later.
When you want to take it depends on your health and income - the worse your health and lower your income, the earlier you likely want to take it. Conversely, if you're in good health with lots of saving or a workplace pension, you may want to delay the payouts.
The best thing you can do to plan your retirement is to speak to a qualified advisor who can lay out a personalized roadmap for you so you feel confident in your future plans.