Surprising to some and shocking to others is how many people could depend on and spend your Retirement Savings. This arose among your responses to our poll a few months ago, repeating what we found earlier in the Halton Retirement Study. If that weren’t enough, Ryerson University this week released a study that 77% of Canadians age 55-69 are deeply worried for their financial future. We’ll dive in and spend some time on this today. Answering a client question we’ll also touch base with someone who lost their entire Old Age Security entitlement – might be something here you (or a friend) may want to know.
WHO IS DEPENDING ON YOUR RETIREMENT SAVINGS?
Three stories. In 2008 the financial world collapsed and a client drew $50,000 to help her son avoid losing the family home while he was without work. Since then an age-60 friend has been withdrawing savings to care for her aging mother, though the daughter’s savings may expire before she herself fully retires. On a happier note, young people too can use RRSPs to help buy a first home or borrow to advance their education, benefiting themselves and their family. You may not have realized, your retirement savings can end up helping others along the way; our focus of course is to keep you safe and your future abundant, whatever needs or circumstances may come up along the way.
As to helping others with your retirement savings, has this already happened to you? Can you see it on your horizon? In our poll, 22% of you replied your children or parents may already or in future need help from your retirement savings. A further 65% admit it’s quite possible as life’s emergencies are unpredictable. So family may turn to you for help. And it’s been clear for years, near three-quarters of retirees use their savings to help other family members through tough times.
It’s like eating for two (no that’s pregnancy) but in this case you’re saving for two or four, maybe even more. Some of our “sandwich generation” (boomers) are caring for parents and children simultaneously. Wonderful if you’re able, yet a potential time-bomb for stress and diminished savings. (You’ll be eager to see the Ryerson U. report mentioned below.)
VALUE OF A FINANCIAL PLAN.
Over the years we have created and continue clarifying your certified financial plan. This plan is your evidence and assurance to freely and confidently enjoy life, within your means and in the manner you choose. It helps you see that your resources can remain safe to protect your future. Some have shared with me their concerns or obligations about family dependencies so we’ve built this into your financial plan. Others don’t see it necessarily arising but as life brings the unexpected in so many unpredictable ways, we purposely design safety-rails and cushions to protect your way forward.
If you’re wondering how we do this, it includes slightly overstating inflation, restraining expectations on growth, diversifying investments globally, and combining real and alternate assets in your portfolio blend. This keeps you safer in view of eventual challenges from illness, family emergencies, or other costly turns on the monopoly board of life. It also affirms the vital nature of our yearly meetings to review the plan and update our notes, as well as re-writing your plan completely when needs, goals, or family situation change to any degree.
WHAT CAN YOU DO?
Take to heart how you use and manage debt (don’t let it manage you!). Keep investing in yourself and your financial wellbeing to expand your knowledge, career, and other interests; also owning insurances for illness and death, building equity in household and other savings, finding how to live on 80-90% of your earnings with the remaining amount available as a personal cushion, also charity and gifts, and overall flexibility. We can expand this theme further to fit your own situation, age and stage of life, personal comfort, goals and aspirations.
Recall I’ve often spoken of adding “one more thing” to the wish-list for your life and future, blossoming into the fullest experience you want to enjoy. An example of this is a couple who have recently hiked through much of the area up north where the famous “group of seven” painted their masterpieces! That is an exemplary way to enrich life – and in covid you can enjoy how it’s here in Ontario and includes safe distancing. Absolutely avoid letting unprepared emergencies or crises become the one-more-thing. While troubles are part of life, proper planning can ensure the abundant lifestyle you choose.
LOSING OLD AGE SECURITY BENEFITS.
Here’s the situation for someone we’ll call John Doe. Investments have grown, and Canada Revenue insists on taking more of your retirement savings into income each year: 4% at age 65, 5% age 70, 6% age 76, 10% age 88, etc. If John’s taxable income this year is $78,000 his OAS benefit will start being reduced by 15 cents per additional dollar until OAS disappears completely near $130,000. If John’s retirement income reaches $130,000 or more he loses all OAS. It may seem like a “first-world” problem but for John it’s personal. Like other people he feels entitled to these benefits due to a lifetime of contribution to our country.
In a different home are husband and wife, enjoying the benefits of splitting income so even if the total is $150,000 it would appear as $75,000 each. Yes they would both get to keep their entire OAS benefits. Alas, if one partner passes away, the sole survivor may soon rise beyond the OAS threshold and be clawed back over the years ahead.
The planning process to protect and maximize government benefits (CPP & OAS) starts when we’re young and then especially in our middle years, and clearly informs how we recommend retirement income as an individual or as a couple. There are many ways we can help you keep (or regain) your government allowances. Since everyone’s situation is unique we address this with you personally.
RYERSON U., NATIONAL INSTITUTE ON AGING.
An original beats a summary so click on either of those links as you feel inclined. In the precarious period when people are near or already retired, 77% say they worry their financial preparations won’t be enough for a safe and comfortable future. This echoes other sources so it’s worth noting what’s happening among our neighbours all around, even our own extended families at times. A few years ago we saw that fully half of working-age Canadians had savings of just $0 to $50,000.
Many realize they will have to work longer to build a nest egg and to abbreviate their retirement (in years, lifestyle, or both). Most people lack a financial plan to guide the way, and their assumptions about future costs (including senior homes or staying-at-home) are dramatically and unrealistically low. As people live longer than ever their future may extend 20, 30, 40 years but without the savings to sustain the life they want. No wonder you’re saying (78% in our own poll, above) that you are already supporting family or may need to do so in future.
Government programs for Canada Pension, Old Age Security, and Guaranteed Income Supplement (for the most needy) are designed to provide roughly 25% of an average retirement lifestyle. The rest of how you live rests on your own shoulders through registered accounts, pensions, home equity, other savings and life/health insurances. If you get into the report you will see options on how to supplement income through a home-equity line of credit or reverse mortgage. They’ve missed the Sell N Stay concept, and frankly I believe reverse mortgages are a scandal for their fees etc. destroying value and family estates. We’ve touched this before and can speak further if needed in your own planning.
Our clients fortunately enjoy many strengths which are not evident in the Ryerson study. We’ve been saving longer, often with greater discipline, and have built well in our working years (accumulation) to provide a good life in the many stages of retirement (de-accumulation). Your Certified Financial Plan (needs, goals, investment plan and more) ensures satisfaction and safety that so many others are sadly lacking. Reach me with any questions you may have on this report or how it speaks to your own needs or in order to help your family or friends.
Freely share this monthly letter and our services to help someone you know.
Yours in Financial Security for LIFE!
Brian Weatherdon, MA, CFP, CLU, CPCA. 905-637-3500
627 Guelph Line, Burlington, Ont. L7R 3M7. 1-877-937-3500
Certified Financial Planner, Certified Retirement Coach
Author: A Lifetime Of Wealth — And How Not To Lose It (2013). Protecting Life, Loved Ones, and Future Dreams (2013). Your Business, Your Retirement: Halton Retirement Study (2015).
** This monthly letter touches on key strategies in Canadian and global investing and financial planning. This letter is not an offer to sell any kind of security, insurance, or program. Historical returns and risk measures are not a valid guide to future performance. Returns are from publicly available sources and research from a variety of firms including but not limited to Canada Life, CIBC, Dynamic, Mackenzie Financial, RBC / PH&N, and more. Opinions in this letter belong solely to the author and no other body is responsible for the content expressed here. We value opportunity to coordinate with your legal and accounting advisers to further your financial goals in home and business. We are grateful always to receive your comments and questions.