Secure Your Nest Egg: 3 Tips to Help Prepare for Retirement
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At 75 and beyond, almost everybody is retired; those who aren’t are usually preparing to quit their jobs. As age creeps up, the question inevitably arises — should you try to consume everything so that everything you have is zeroed out at the moment of your passing? The concept, part of what economists call the lifetime income hypothesis, is that you should expire with all assets spent. On a technical note, that implies that each person knows the moment of demise and prepares for it accurately. This is variously difficult to do or nonsense. At the other end of the spectrum, leaving a legacy to family and/or to good causes encourages asset retention. Take note: the end game does not have to be an expensive venture or one done on a bare-bones budget. It is not a single choice but a matter of mix-and-match, liquidity over prepayment of care via insurance premiums or maintaining liquidity and assets. The question then becomes “What’s next?”
Here, three strategies to help you set up the end game.
1. Don’t drop your guard
Exploitation is a problem. With good reason, financial institutions tend to give extra attention to seniors’ transactions. Close to home, there is evidence that family members are responsible for a great many financial misdeeds against older folks. The U.S.-based National Adult Protective Association estimates that 90 per cent of senior citizens’ financial exploitation is committed by family members. Draft a power of attorney to ensure that nobody but that person can meddle in your finances.
2. Be prepared for the worst
Long-term-care insurance is not necessarily a bargain, but there are policies with refunds for non-use. As well, supplemental health insurance is like pre-payment for some services. Shop around as insurance companies tailor the policies to age and benefits. For example, a policy for a 75-year-old man that would pay $5,000 a month for institutional care with a 90-day wait period and a $1 million lifetime accumulated limit on payouts would cost $21,00o a year, says Don Forbes, head of Forbes Wealth Management Ltd. in Carberry, Man. He explains that these policies are scalable, so that half the benefits would cost half the price.
Review on an ongoing basis your insurance plans for health, travel and especially long-term care to ensure you’re not paying for coverage you don’t want or need. If you are lucky, you won’t need to make use of it, but for those who do need these services, the plans can be the protection of the fortune you worked hard to build. Be aware that even if you’re running marathons at 75, insurance companies will treat you as vulnerable: health insurance extensions to provincial medical plans become more expensive; travel insurance rates skyrocket; life insurance for most people is unavailable or unaffordable.
3. Pay yourself a salary, starting now
With increased life expectancy, government assistance from Old Age Security and the Canada or Quebec pension plans, private savings and substantial capital accumulated in homes, older people are often affluent, with liquid savings to spend and money coming in from pensions. Most of these plans are life annuities. You get the money while alive, and then some money can go to a spouse or designated partner. These plans generate payouts from income and capital. Alternatively, savings can be set up to pay out all income and no capital. These are called perpetuities; the capital stays in place, though perhaps eroded in value by inflation. Investments can also be set up as annuities for a given term or life. They pay out all income and capital by a certain date or by the end of a designated life.
A version of this article appeared in the Jan/Feb 2019/20 issue with the headline, “Step Up Your Spending,” p. 32.