Jul 14, 2016
Pattie Lovett-Reid: How to make your money last as long as you do
ANALYSIS: Will your money last as long as you do?
Here is an average worth paying attention to: According to the Chief Actuary of Canada, a 65 year old man today can expect to live until age 84, while a woman can expect to live a couple of years longer, largely due to advances in health care. For most of us, our greatest concern is our health, but a very close second should be outliving our money. Remember, these statistics are only averages.
Here are a few ways to stretch your retirement dollars just in case you live even just a little longer than you anticipated:
1. Live according to your income: Don’t spend as if there is no tomorrow, but don’t save until it hurts. Knowing how much money you have coming in and what you’re spending money on is fundamental to a balanced life and balanced account. Many are entering into retirement in debt. In fact, 40 per cent of those 65 and older are still carrying debt, estimates show. Want to guarantee you’ll outlive your money? Continue to rack up debt.
2. Continue to build up the equity in your home: There may come a time to downsize and any money made on your home is tax free. The real estate market is hot and depending on your age and financial situation you might consider locking in those gains and consider an annuity to create an income stream for life.
3. Take the minimum yearly withdrawal out of your RRIF once you hit 71: The good news is, recent reforms have reduced the minimum withdrawal levels to reflect current longevity trends. For a 71-year-old, the minimum has changed from 7.38 per cent to 5.28 per cent. For an 80-year-old, the percentage dropped from 8.75 per cent to 6.82 per cent. The longer you leave your money in the plan, the longer you have to take advantage of tax deferred growth. Something to keep in mind: Once you hit age 90 it is still 20 per cent which make annuities a worthy consideration again in your late 80s.
4. Take care of your health: We have a great health care system in Canada but it won’t cover all your medical needs. Dental, glasses, mobility devices and home care are just a few areas where costs can add up very quickly. This is where an emergency fund comes into play in retirement.
We all joke about spending our children’s inheritance, but having a little tucked away for your children might come handy should you need it. This stage of life requires many of the financial planning skills you demonstrated throughout: have a plan, make it your own plan, stick to the plan and tweak the plan as life dictates.
As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on Twitter @PattieCTV
