If you own a farm, and are looking to transition to a next generation or simply looking to sell to move into retirement, there are complex decisions that need to be discussed prior to the sale. We can help you with this process. If you are not a business owner you may have other questions surrounding retirement, and we are here to help with those matters as well.
Retirement represents a new phase in your life that has emotional and financial implications. The first step towards financial preparedness for retirement is to determine the amount of retirement income you will need.
Conventional wisdom which suggested that you replace 60 - 70% of your pre-retirement income is now largely replaced by the realization that there is no infallible benchmark: how much you need in retirement depends on a number of factors, discussed below.
Retirement Lifestyle
This is probably the most important determinant of the amount of income you require. Ask yourself these questions:
Where will you be living?
Will you be staying in your current home? Or are you contemplating downsizing to a smaller residence to increase your retirement nest egg? Is moving from a big city to a less expensive part of the country in the cards? Are you hoping to spend part of the year in warmer climates?
What activities will you pursue?
Do you envisage travelling a lot or taking up new hobbies? What will be the estimated price tag be?
Do you plan on becoming a "working retiree"?
Today's retirees are more youthful and enjoy better health than ever, and some have decided to keep working for a few more years after retirement to fulfill social and emotional needs. The decision to work part-time may also have a positive impact on your retirement income calculation.
Costs that change as you retire
Personal spending pattern
Once retired, you will likely be spending less on clothing and transportation. You may also no longer have a mortgage. On the other hand, you may be taking up new hobbies and activities and incur more entertainment and travelling expenses.
Taxation
Your tax bill will likely go down when you retire. Moving to a smaller dwelling may also mean a diminished property tax bill.
Depending on your retirement income sources, you may be able to take greater control over planning your taxes. Thus, if your income sources include registered retirement savings plans (RRSPs), tax-free savings accounts and non-registered investments, planning your withdrawals wisely can have significant impact on your taxes.
Contributions to pensions and savings plans
Pre-retirement expenses associated with contributions to public pension plans, employment insurance, employer pension plans and retirement savings (e.g. RRSP), will be eliminated. In fact, rather than saving, you now have the ability to draw on these income sources.
Health coverage
Your medical and dental costs could increase if you are no longer covered by an employee plan.
Family Situation
People are living longer today, and many retired people have to take care of their elderly parents. At the same time, this "sandwich generation" may still be providing financial support to their children, as young people stay in school longer and tuition costs skyrocket. This dual responsibility may translate into unforeseen costs in retirement.
Other Factors
Are you retiring early?
The earlier you retire, the more money you will need, not only because your income sources must cover a longer retirement period, but also because your savings period is curtailed.
The amount of retirement benefit you will receive from CPP / QPP may also be impacted, especially if you also decide to start receiving those benefits earlier.
Members of registered pension plans who retire earlier will typically receive a smaller pension income, as a result of the fewer years of service accumulated and potential early retirement penalties.
Inflation
Last but certainly not least, don't forget to factor in the rising cost of living. For example, if your estimated after-tax retirement income need is $50,000 a year, an annual inflation rate of 2% will mean that you need over $90,000 in 30 years' time!
To ensure the financial success of your retirement, start now to develop a retirement plan! For more assistance, contact your TD Waterhouse advisor.
If you would like more information on retirement planning or other wealth planning needs such as farm succession planning, please contact Dwayne Palchewich, CFP, FICB, FMA Investment Advisor, TD Waterhouse Private Investment Advice at (306) 975-7421 or (800) 285-1160.
(NC) - Here's the answer to one of the most frequently asked questions, courtesy of hrblock.ca:
Q. I have been living with my boyfriend since July 2011. Do I file as common-law?
A. You are not considered common-law for tax purposes until you have lived together for 12 continuous months. But if you have children, you are considered common-law as soon as you begin living together. Your marital status is determined on December 31 of the tax year. Once you are common-law, you continue to file individual returns but with spousal information. There is no joint filing option in Canada. More information is available online at hrblock.ca.
Investment strategy for a lifetime
A change in employment. Kids. Moving. Mortgages. The only thing constant about your life is constant change. That's why a 'set it and forget it' investment strategy won't work for you - not if you want investment returns that will provide the financial flexibility to live your life and all your retirement years exactly as you want.
How change affects your retirement date, lifestyle and requirement for retirement income
Great news! You're going to enjoy retirement for many years. Most people can expect to live longer and healthier lives. So it's prudent to plan to ensure you don't outlive your income.
You can retire when you want. For most occupations, 65 is no longer the mandatory retirement age. You can choose to work after age 65 and accumulate more money for retirement. Or you can continue working part time after retirement either to supplement your income or simply because you want to.
Your company may want you to keep working. Older, more experienced employees are increasingly being viewed as a valuable resource. You may even be offered incentives to stay in the workforce after age 65.
Don't assume you'll receive a 'defined' retirement income. Defined benefits pension plans are becoming less common. You may have to bear more responsibility for your retirement income planning.
How a flexible, lifestyle approach to investing lets you cope with change
A lifestyle approach to investing takes into account your financial needs and ability to save at the three main stages of your life:
Ages 25-40 - The savings years when your expenses are usually higher and you have less to invest. On the other hand, you have a longer time horizon to retirement so you can choose an aggressive investment strategy that includes more volatile investments that may go down in the short term but may produce higher returns in the long term. Be sure to maximize contributions to your RRSP eligible investments.
Ages 40-60 - The wealth-building years. Your debt is down or gone and you have more capital to invest. As your retirement nears, consider redirecting your portfolio into lower-risk, fixed income investments. Continue to make max contributions to your RRSP eligible investments.
Age 60 and over - The retirement years. You'll likely tap into your investments for your retirement income. Focus on investments that preserve capital but also consider growth investments that can add to your income and protect against inflation.
An effective investment strategy contains many other elements, of course (like proper diversification and asset allocation). Your professional advisor can help you make the best choices for you, regardless of change.
This column, written and published by Investors Group Financial Services Inc. (in Québec - a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.
A Registered Retirement Savings Plan (RRSP) is a fundamental component of a retirement plan, providing investors tax breaks with each contribution as well as the advantage of tax-free growth. BMO InvestorLine recommends that Canadians take advantage of the benefits that come with opening an RRSP through an online brokerage.
A growing number of Canadians are choosing to do their investing through an online brokerage. According to a BMO InvestorLine study, more than one-third (34 per cent) of Canadians have either adopted online investing as a way to make and manage their investments, or are considering doing so.
"Holding an RRSP with an online brokerage can provide several benefits, including greater flexibility, control over your investments and convenience," said Cesar Rainusso, Vice President, BMO InvestorLine. "Online investing platforms are continuously evolving to make it easier for investors to make the right choices, while also providing educational resources and tools."
An online brokerage service provides the following advantages:
Gain control of your retirement - Investing independently allows investors to take control of decisions that will impact their retirement. Online brokerages can provide support along the way, offering resources that can help make these decisions. BMO InvestorLine's Research Centre and Education Centre have a vast array of resources that can help make informed investment decisions.
Valuable tools to help you manage your RRSP with confidence - Online brokerages offer a variety of tools, some that include the ability to set stop orders which allow you to protect your portfolio on the downside of the market, and lock in gains on the upside - even when you're not watching.
Contribute with ease - BMO InvestorLine's Pre-Authorized Registered Contribution process allows investors to withdraw a fixed sum directly from their bank account - monthly, quarterly or annually - and deposit it into their RRSP, making investing a (good) habit rather than a chore.
Access to a wide array of investments - Online brokerages offer a wide variety of investing options - including exchange traded funds (ETFs), mutual funds, guaranteed investment certificates (GICs) and bonds - and enable investors to select the products best suited to meet their investment objectives.
Find the plan that's right for you - BMO InvestorLine offers several types of tax-sheltered retirement plans including standard RRSPs, spouse/common-law partner RRSPs and locked-in retirement plans.
(NC) - There is no doubt that RRSPs (Registered Retirement Savings Plans) and TFSAs (Tax Free Savings Accounts) play key roles in financial and retirement planning. Investors Group financial planning expert Myron Knodel says there are two key factors that can help you decide which investment vehicle is best suited for you: "One is how frequently the funds will be removed and re-contributed in the years leading up to your retirement," he explained, "and the other is what your marginal tax rate is today compared to what it will be when you withdraw the funds are the critical considerations. If you are going to need the funds prior to retirement and intend to re-contribute them at a later date, a TFSA may be the better option. And, if your marginal tax rate is lower at the time the funds are removed from your registered plan at retirement, the RRSP option will usually produce a better result."
Financial tips and investment information are available online at www.investorsgroup.com.
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