Retirement has changed
The landscape looks a lot different for folks who retire today compared to 20 years ago.
You might not have a company pension. You might still be supporting adult children. You could be caring for elderly parents. You could even be doing both at the same time.
You might be renting. You might not downsize because you want to stay in your family home for as long as possible. You might also retire well past the “traditional” age or 60 or 65. You might want or need to keep working part-time.
We’re also living longer. This means our retirement savings might have to last longer than ever before. If you outlive your money, that’s called “the longevity gap.”
Living longer can also mean more years living in poor health, also known as “lifespan vs healthspan.” This may mean you have more medical expenses than you planned for, like a home health aide or services like physiotherapy that aren’t always totally covered by government healthcare.
The rising cost of living has an impact too. Government programs may not be enough to live on as a retiree. Inflation could eat into your savings if they’re not growing. Market volatility can also be a concern.
These changes mean it’s important to take a fresh approach to managing – and even growing – your wealth in retirement.
Here are a few strategies to think about.
Before you retire
When you’re still working, look at ways that you can maximize the wealth you’re taking into retirement.
A few things you could try, whether you’re decades out or 3, 5, or 10 years from retiring:
Create a retirement budget
Long before you stop earning a full-time income, it can be helpful to figure out what you’ll be working with when you retire. How much income will you have? What will your expenses be?
Knowing this number – what you have vs what you need – can help you focus as you prepare for this next step.
Pay down debt
Ideally, you want as little debt as possible when you’re retired. Paying off your home, credit card, cars and other debt while you’re still working can help ensure your money goes further in retirement.
Maximize registered savings plans
One way to prepare for a long retirement is to make sure you’re not missing out on the tax benefits of registered savings plans like RRSPs or TFSAs, while you’re still earning. If you can, consider investing any tax refunds you might receive, too.
Take advantage of workplace savings plans
Don’t leave any money for your retirement on the table. If you have a workplace retirement savings plan or pension, try to contribute the maximum amount you can.
Diversify
You don’t want to put all your eggs in one basket for retirement.
Diversification means putting your money into a variety of different places. This can help manage risk.
It can also help you weather market volatility – and the longer your money is in the market, the more likely it is that you will see major ups or downs.
Ideally, you also want to still be able to grow your wealth.
This can mean finding a mix of products and assets that work for your specific goals and situation.
You might consider:
Segregated funds
A segregated fund is a pool of money spread across different investments. It’s managed by experts and helps you diversify your savings and protect them from dips in the market. Depending on how much you’re looking to invest, there’s a broad range of series choices with different fee designs.
Mutual funds
A mutual fund pools your money with many other investors in a group of investments, like stocks and bonds. A professional money manager chooses the investments for each fund with a specific objective and investment type in mind.
Annuities
An annuity is a contract with a life insurance company. You provide them with a lump-sum payment from your defined contribution pension plan, RRSP, RRIF, LIF, LRIF, prescribed RRIF (PRRIF), deferred profit sharing plan (DPSP), or non-registered savings.
In return, you receive a guaranteed income stream (like a pension) payable for a specified period or as long as you live. Depending on the type of annuity you choose, the payments may continue to your spouse or other beneficiary after your death.
Plan your estate carefully
If you want to leave something behind for your loved ones, estate planning can be a key part of wealth management in retirement.
An estate planning expert can help you find the best way to ensure your legacy is passed on smoothly to the people you care about.
If you haven’t already made a will, it’s a good idea to start there.
Work with an advisor
You don’t have to make these big decisions alone. An advisor can help guide you as you make these long-term plans for your future. They can help you set financial goals, create an investment strategy and help bring it all to life.
When you’re retired or nearing retirement, an advisor can help you build a practical plan that takes into account your savings and any pension or government benefits to help you create a retirement income that suits your individual needs.