Financial Strategies to Retire Comfortably  

Retirement planning has always been important, but as Canadians are now living longer it’s even more critical to have a realistic retirement plan in place. For many people, their retirements year can be almost as long as their employment years and this means their savings have to managed wisely.  In the meantime, inflation and higher costs for just about everything can make it harder to make your money go as far in retirement.

As a result, it’s more important than ever to be financially prepared so you can retire happily and securely. However, retirement planning can be complex and it requires an understanding of both the sources of income and how much is needed to fund the full retirement.

Sources of Income Post-Retirement

You’re likely to have three potential sources of income in retirement:

Canadian Pension Plan and Old Age Security

The Canadian Pension Plan (CPP) is funded by your contributions, and Old Age Security (OAS) is funded by the government. It’s based on several factors, including your age and the number of years you’ve lived in Canada. Though the average Canadian will receive funds annually from these sources, the amount may fall short to cover existing lifestyle requirements or any sudden contingencies.

Employer-based pension plans

Many employers use Defined Contribution pension plans. As a worker, you can contribute to one of these plans, and so does your employer. The amount you’ll receive depends on how successful the investments are. Alternatively, employers may use a Defined Benefit pension plan which provides monthly benefits upon retiring based on a workers earnings history, tenure of service and age.

Personal savings

If you have investments such as a Registered Retirement Savings Plan (RRSP), Tax Free Savings Account (TFSA) or Retirement Savings Plan (RSP), you may have additional money in retirement. The amount depends on how early you start to save and how much you put into your accounts, as well as the interest or dividends you receive on your earnings.

The above listed savings and income are the primary sources for most Canadians and unfortunately, these funds may not provide enough money to get you through retirement comfortably. Perhaps your investments were hit hard by the stock market downturn. Or maybe you haven’t worked as many years as you’d planned due to health issues or layoffs. You may have been forced to spend more of your savings than you’d planned to due to these issues. There are a myriad of reasons why your retirement savings may just not be able to support you and your family during retirement.

Financial Strategies That Aid Retirement Planning

The following financial strategies for retirement planning can help your retirement be more financially secure:

Continue working

Staying employed, even perhaps part time, will help you earn more money and possibly increase the amount of money you have in an employer-based pension. Your CPP benefit will increase by 6 percent each year you can delay retirement, up until age 70. If your investments have taken a downturn, they may be able to bounce back some if you can delay retirement and give them some additional time to rebound.

Increase your savings

If you have several years before retirement, investing extra money each month can help get you closer to your retirement planning goals.

Cut your debt as much as possible

Debt can hurt any budget when you’re still in the workforce. But when you retire, it can hurt even more since you may have less money coming in each month to make your debt payments and meet your other living expenses. Your retirement planning should include a strategy to help you pay off debt that will otherwise be a financial burden once you’ve retired.

Monitor – and modify – your investments

If you’re nearing retirement, you may want more conservative investments than you’ve had in the past. Your risk level changes as you age.  As you age,  you are likely less able to weather the ups and downs of the market.  Your investment strategy should reflect the place you are in life, making any adjustments necessary to help make sure you’ll have the money you’ll need to retire.

Consider a reverse mortgage

If you’re nearing retirement and have lived in your house for a long time, you probably have built up a significant amount of equity or even own your home outright. Your home may be the most valuable asset you own, but you may not want to sell it. You may have emotional attachment to it or may not want to incur the significant expenses associated with moving and find another place to live.  The primary benefit of a reverse mortgage vs. other forms of secured financing such as a conventional mortgage or line of credit is that you do not need to make monthly mortgage payments.  This allows you the ability to use the equity you have taken years to build so that you can live comfortably in your retirement years while still living in your home.

A reverse mortgage can be a sound financial solution to help fund your retirement, but you need to understand the terms and conditions to find out if it’s the right choice for you.  I would be happy to discuss reverse mortgages in more detail should you wish more information.  You can contact Joanne at 1-855-770-3225 or 819-639-8867 or joanne@mortgagesforseniors.ca.

 

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