The Big Money Makeover: 40s, 50s, 60s, 70s And Beyond
Surveys show that many Canadians are worried about outliving their savings. Here, tips for planning for retirement in your 40s, 50s, 60s, 70s and beyond.
THE FURIOUS 40s: According to Sun Life Financial’s Unretirement Index, 71 per cent of Canadians are not at all confident about meeting their basic living expenses in retirement, and 38 per cent say there is a serious risk of outliving their savings.
You wouldn’t think 40-somethings Nadine and Geoff fit this profile but, despite the fact that they earn in excess of $150,000 a year, they’ve got a sizeable mortgage of nearly $600,000, three children to put through school and dreams of their own for retirement. “The first thing they need to do is get on track with savings goals,” says Calgary-based Sun Life financial adviser Elizabeth Taylor.
“Estimate how much you’ll need to set aside in savings each month for key goals like travel, children’s education and retirement,” she says.
Canadians entering middle age also need to make sure they get the most out of any group plans offered by employers. Although there’s been a shift away from defined benefits to defined contributions in Canada, many employer plans match funds employees invest in their retirement, and this is money that should not be left on the table. People like Nadine and Geoff also need to protect their income in their higher earning years with life insurance.
“A recent study reveals 53 per cent of people aged 45 to 54 are struggling to make ends meet after a major health incident. If you become unable to work, you don’t want to dip into your retirement savings,” she says.
THE REFLECTIVE 50s: Mark has always been a good saver. For almost 30 years, the 50-something entrepreneur has been “paying himself first” and amassed a nest egg of more than a half a million dollars. But the growth in his portfolio has been lacklustre. Part of the problem with Mark’s portfolio, says Shaun Darchiville, is that like a lot of other Canadians saving for retirement, he knows what he has but he hasn’t the faintest idea why he has it or what it’s going to do in the long run.
“There’s more to saving that just putting money into an RRSP every year,” says the long-time financial planner with Desjardins Securities in Toronto. Too many portfolios, like too many lives, remained unexamined, he says, and the result is that too many people are reaching retirement age with less than they need or want because they don’t make the changes necessary to keep them on track.
“What you need to do in every case is examine a portfolio, determine what it is going to generate for you and then ask yourself if it’s going to be enough. Then and only then can you decide if and how you are going to take on risk,” he says. “If an investment doesn’t serve your goals you have to make a change.”
The 50s is also the time in life to get serious about budgeting. “One of the biggest problems is not having a budget,” he says. “And a lot of people don’t realize that budgets change over time. Some things drop off, others are added on. You need to know what you are spending because the more you understand your spending the more you can manage your overall plan.” Other considerations:
THE SWINGING 60s: For the better part of the 30 years 60-somethings Brian and Christine have been working together to save for retirement, they have operated on the assumption that at some point in their seventh decade they would begin and perhaps complete the process of transferring their assets out of “risk-bearing” equities and into “safe” investment vehicles such as GICs, bonds and even cash.
It’s common practice and for good reason; you don’t want to risk losing your precious nest egg when there is so little time left to replace it. The logic is sound, says Brian Wood, investment sales manager for BMO Financial Group in Halifax, but Canadians who can see their retirement on the horizon have to be careful about abandoning investment strategies that eliminate growth altogether.
“It’s definitely time to change the conversation from one that revolves around growth to one that addresses preservation of capital, but you can live a long time and the money you have may not last the kind of lifetimes people are living nowadays.”
Spending needs in retirement tend to fluctuate wildly, he says, and even frugal spenders can be left with big bills to pay if they face long-term health care needs at the end of their lives. During retirement, inflation can “drastically” erode savings. Brian and Christine might be better off retaining some exposure through equities to maintain at least some growth over the potentially long haul, he says.
The good news is that they don’t have to take “flyers” on trendy stocks with vertiginous downsides; they can opt for blue chip stocks like banks and would be well advised to seek out stocks that pay dividends. Other financial-plan chores for the 60s include:
THE NOT-SO SEDENTARY 70s AND BEYOND: Think financial planning is no longer a priority in your 70s?
Think again, says Evan Hickey of RBC Financial Planning in Halifax. It’s a time in life when “life issues with financial implications” can undermine the most carefully laid plans, so Canadians in their 70s – be they single or married – need to have strategies in place to address both expected and unexpected costs.
“Knowing budget and cash flow is important at any age, but it’s key in this age group because costs tend to be fixed,” says Hickey, who likes to take a holistic approach to financial planning for 70-somethings. Areas for consideration include lifestyle, health, mind and spirit, family legacy, home, work in some cases and even business.
“These areas all have financial implications,” he says, adding that this is the stage when Canadians who said “I don’t care what I have in my 80s” have second thoughts. Retirement in the 70s and 80s can be active and rewarding, so your first priority is ensuring there is sufficient cash flow to live life to the fullest. Older Canadians need to maximize tax credits, making the right investment choices to minimize taxes and taking advantage of income-splitting opportunities to “reduce outflow.”
Asset allocation also needs to be re-evaluated. “I wouldn’t subject clients to unnecessary exposure at this age, but even a conservative portfolio includes about 40 per cent equity exposure,” he says.
Obviously, legacy planning is a big piece for this age group, he adds. Partly it’s about protecting what you have built for loved ones but it could also include giving back to the community, either while alive or through a will. Other planning considerations:
– Renovating a home to allow aging in place, perhaps making space for a live-in caregiver
– Preparing for possibility of institutional long-term health care, which includes understanding rules for payment in publicly funded facilities in your home province
– “Living life to the fullest and ensuring life is fulfilling.”
How much money any of us will need for retirement is obviously a function of both necessity and desire, but a little number crunching clearly indicates that when it comes to capital assets, more is better. Consider these salient social and economic indicators. According to Employment and Social Development Canada, life expectancy for Canadians is now up to 81, an increase of six years since 1975. At the same time, Statistics Canada reports that the average senior household in Canada (65-plus) is spending more than $47,000, which means that a 20-year retirement can cost nearly a million dollars, and that’s not even accounting for the effects of inflation.