Retirement planning is now a moving target

If there’s one thing that’s becoming the “new normal” for those now at or near retirement age, it’s “change.” Everything we thought we knew or expected about retirement has changed. We now see senior children caring for their (very) senior parents (and sometimes for their own middle-aged children as well!). A longer lifespan now often means a laterretirement and the very real possibility of outliving your nestegg. The first step to successful retirement planning is to identify the challenges that today’s retirees face and develop a plan to deal with them. Here’s my take on what has become the new normal.

The RRIF conundrum

The RRIF rules worked very well for a long time. But our life expectancy has grown by five to 10 years over the last few decades. However, RRIF withdrawal rates haven’t changed, so there is a very high probability that many seniors will be forced draw down their RRIFs to zero during their lifetimes.

The minimum annual withdrawal rate for RRIFs should be decreased, so that if you live until, say, 105, you will still have money to pay your living costs. Until this happens, seniors (or their executors) need to take some of that forced withdrawal and invest in a TFSA as a contingency plan. Lobbyists have been trying to press the government to address this issue, but as yet there is no sign of when any change to the withdrawal rules will occur.

Seniors and their children

I continue to hear (and read) stories about desperate children trying to use powers of attorney to get their hands on their parents’ money, feeling that it’s their “right” to access the funds and assets that presumably will get to them eventually anyway. My advice to seniors is to be very careful about whom you grant power of attorney to. If you have doubts, grant two powers of attorney.

Avoid lending money to adult children (especially those over 40) if at all possible. You have already spent massive amounts of time and money to put your children on the right road. As adults, they have to take responsibility for their life decisions and spending habits. Money “lent” to adult children is rarely repaid and can cause issues with other siblings who aren’t asking for or receiving any funds.

The new retirement and adjustments

The “new retirement” is much the same as it was for Baby Boomers’ parents, in that many of today’s retirees will work until 65 and sometimes longer if they have to or if they still enjoy the work. This probably won’t apply to retirees with generous defined benefit pension plans but will apply to many others.

Whether one or both spouses continue working will, of course, depend on your personal circumstances. The major difference lies in relative life expectancy. When the Boomers’ parents retired at age 65, actuarially, they had average life expectancy of between five and 10. People retiring today can expect to live another 15 to 25 on average, which means the capital amount you need to support that many more years has to be muchlarger than your parents’ was.

This is why it’s vitally important to utilize all the savings and tax-deferral tools at your disposal, including RRSPs and TFSAs, to give you options down the road. Then you can make adjustments to cover contingencies, such as growing healthcare and long-term care costs.

There will always need to be adjustments, because we never know what the inflation rate will be in advance. We don’t know what returns our investment portfolio will bring in advance. We don’t know in advance how our health will be.

All of this post-retirement uncertainty, combined with longer lifespans for retirees, makes it critical to meet with your financial advisor once or twice a year and tweak your plan as needed based on your circumstances. Because the only constant now is change.

— Courtesy Fundata Canada Inc. © 2015. Bruce Loeppky is a financial advisor based in Surrey, B.C. This article is not intended as personalized advice.