When retirement arrives, you want to enjoy this new chapter in your life – not start off with a multitude of financial decisions and to-dos. You can have comfort instead of chores by taking care of a few financial matters as retirement is approaching.
ASSESS INSURANCE NEEDS
When your working years end and you no longer receive group benefits from your employer, you may want a private health insurance plan to cover dental, vision and other health services. It’s a good idea to review the available choices in the marketplace and decide if you want to take this route or cover health expenses on your own.
You may also want to consider permanent life insurance, which can meet a variety of estate planning needs. For example, proceeds could offset the tax payable on estate assets or equalize inheritances among children if just one child takes over the family business or receives the vacation property. Purchasing life insurance at a younger age secures lower premiums.
CONSIDER WHEN TO START GOVERNMENT BENEFITS
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) and Old Age Security (OAS) benefits can potentially begin before or immediately upon retirement, so you’ll want to consider your start date sooner rather than later. You can choose to collect a lesser monthly CPP or QPP benefit as early as age 60 or a greater benefit as late as 70. OAS benefits normally begin at 65, but you can defer benefits up until 70, resulting in a 36% increase. Many factors go into the decision of when to begin receiving benefits, including your health, retirement date, tax situation and retirement income strategy. Please feel free to contact us for assistance when deciding on your CPP or QPP and OAS start dates.
ADJUST YOUR PORTFOLIO
If you’re fortunate, the markets will perform well or at least hold their own during the years before you retire. However, you need to prepare for the possibility of a significant market downturn – one that could drag down your portfolio value and jeopardize your retirement date. Typically, that means reducing your equities to reduce risk and increasing your fixed-income investments for protection. Such changes must be done carefully nowadays, since traditional fixed-income vehicles don’t provide the solid earnings they once offered, and the investment growth of equities is needed to fund a retirement that may last 25 years, 30 years or longer.
The proper balance is customized for each investor and depends on several factors, including risk tolerance, retirement income sources, liquid net worth and your spouse’s financial situation. Also, various investment strategies and solutions are available to prepare for drawing retirement income. For example, some investors are well served by establishing a cash reserve designed to fund the initial year or years of retirement. In the event of a market correction, this solution helps to allow more time for markets to recover.
MANAGE DEBT AND EXPENSES
It’s more manageable to pay off debt when earning income than to pay it off while drawing income. Paying off any credit card debt or other high-interest debt is like saving every dollar you would have paid in interest. Also, home repairs and renovations may be easier to handle financially now, compared to budgeting for those expenses during retirement.
Please get in touch if you would like to discuss wealth planning measures in the years leading up to retirement.
ADVANCING OR DEFERRING CPP/QPP
For 2022, the maximum monthly CPP or QPP amount is $1,253.59 if you start at age 65, though the average is significantly lower.1 This table uses a $1,000 monthly benefit at age 65 to illustrate the effect of advancing or deferring the benefit.
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1 The amount of your CPP or QPP retirement pension is based on several factors, including your average earnings throughout your working life and the amount and length of time you contributed to the plan.