With 2019 only a few short weeks away, many will be looking forward to putting in their retirement notice. Retirement should be a stress-free time. A time where we enjoy friends, family, hobbies, or other great things life has to offer. However, not everyone’s retirement is like that.
To start your retirement on the right foot here is an easy to follow 5-step guide to go through. The more time you give yourself to prepare and plan ahead, the smoother the transition will be.
Update Will and Enduring Power of Attorney
According to a poll done in January of 2018, by Angus Reid Institute, more than 51% of Canadians do not have a Will. Furthermore, only one-third of Canadians said they had an up-to-date Will. The 2 main reasons cited for not having a Will; 1) being too young, 2) not having enough assets.
We recommend that all of our clients have a Will no matter what age or net worth, and review and update every 5 years. Having an updated Will can reduce a lot of the stress that comes with the passing of a loved one.
Having a Will is great, but it is also important to talk about what is in the Will with your beneficiaries and executor. Having this conversation can sometimes be awkward and difficult but can alleviate surprises and hurt feelings. Read our previous post on “The Importance of Talking Money“.
Sit Down With A Financial Planner
Sitting down with your financial planner/advisor is something that should happen annually. This is even more important when approaching retirement. At Forbes Wealth Management we try to meet with all of our clients at least once a year.
Make sure you update your advisor on your changing life circumstances, goals, and your upcoming plans. They should have your best interest in mind and are there to make sure you are on track to achieve your goals.
The relationship with your advisor should be built on mutual trust. The more details you can provide your advisor, the more comprehensive the advice will be. Here are some things you should talk to your advisor about leading up to retirement:
- Monthly expenses and sustainability of your investment withdrawals.
- Income tax consequences.
- Financial/Life Goals in retirement.
- Converting RRSP/LIRA to RIF/LIF as required for income.
Close to 40% of Canadians surveyed feel their financial futures are not in control. Seeking out the professional advice of a trusted advisor can help mitigate the stress and anxiety around your financial future.
If you don’t already have an advisor, start by reading “10 Questions You Should Have Already Asked Your Advisor“. A great starting point on your journey to finding a financial advisor that will help you achieve all your life goals.
Apply for CPP/OAS
In Canada, when you retire you are eligible for both the Canadian Pension Plan (CPP) and Old Age Security (OAS). CPP and OAS (the Canadian version of social security) are based on how long an individual has worked, how much they have earned, and their age.
Full entitlement for both (CPP and OAS) begin at age 65 and can be delayed until age 71. By delaying your benefits until later, you are given a bonus.
If you postpone collecting OAS, your monthly payment will be increased by 0.6% for every month delayed. This is applicable until a max of 36% at age 70.
If receiving CPP is also delayed, monthly payments will be increased by 0.7% for each month delayed until a max of 42% at age 70.
CPP can also be taken early, starting at age 60. If CPP is taken early, monthly payments are decreased by 0.6% every month before age 65. Assuming CPP is started at age 60, the benefit will be 36% less than if started at 65.
Dependent upon your personal situation, when you should apply to receive CPP and OAS can differ. This is something you should discuss with your advisor to make sure you are reaping the most benefit.
No matter when you want to start receiving these benefits, you must first apply. To see more detail about CPP and OAS, or to see the rules and forms applicable click here.
Budget
Budgeting is always important, especially going into retirement. Retirement is a crucial time to make sure that your budget is accurate and that you are living within your means.
Make sure you are spending a reasonable amount that can be sustained throughout retirement. If current spending habits are too high and continue into retirement at the same rate, they may have to be cut drastically in a few short years.
Once you retire, your income is all passive (what is passive income? click here). Overspending might cause your savings to diminish a lot faster than anticipated, thus sacrificing quality of life down the road.
It is also important to make sure you have a cash reserve. We recommend having 3-6 months worth of living expenses readily available in cash. Life is full of surprises, and who can say when the next one will appear.
Pay Off All Your Debt
When nearing retirement, we recommend making a concerted effort to minimize the amount of debt being carried. Since income is passive and often fixed during retirement, debt can be a lot more stressful to deal with.
This is even more important as interest rates increase. If they continue to climb (which they most likely will) it will be harder to manage the increased debt payments.
If you are still carrying debt going into retirement, it is important that you create a debt repayment plan. Figure out what is a reasonable amount of debt to pay off monthly, and stick to it. The longer you hold debt in retirement the harder it can be to pay off.
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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy.
