There’s no denying it: financial planning for retirement can be an intimidating task. It may seem impossibly far off when you’re young but can be more expensive the later you get into it. Our lifestyles seem to be getting more and more expensive, and people are living longer and longer. There’s just so much to consider. So, before you and your partner get too overwhelmed, let’s break it down into a simple checklist.
Here are some of the questions to consider as you and your partner figure out how much to save for retirement:
- Where will you live? Will you stay in your current home? Will your mortgage be paid off? Will you downsize? If you do decide to downsize, any profits can add a sizable amount to your retirement funds. But also consider home maintenance and property tax costs. Or you might choose to move to a retirement community, which could require a significant amount of budgeting. Basic care at a private retirement residence can cost between $3,000 and $7,000 per month.
- Will you continue to work? Many new retirees land a part-time job, whether it’s to pass the time or because they need the extra cash. In fact, 1 in 5 Canadians over 65 are working. If this is right for you, be sure to factor this income into your retirement budget.
- Do you plan to travel? After a long career, many people view retirement as their chance to see the world. But just how much travelling do you envision for yourself and your partner? A few trips a year to various destinations? One big trip every few years? Maybe you’d even like to become a snowbird and winter down south.
- Do you have other lifestyle choices to maintain? What’s going to keep you happy and active in your retirement years? From going to dinner and a movie a couple of times a month, to a golf and country club membership, and anything in between, try to set aside funds for fun. And if you do have more expensive tastes in fun, it might be worthwhile to consider whether downsizing your home is worthwhile if it will give you more budget for fun.
- Should you commute your defined benefit pension, if you have one? What’s better for a couple’s wants and needs?
First of all, commuting a pension means taking a lump sum today, versus receiving a stream of payments from your employer at retirement. For this answer, we consulted with Manulife PlanRightTM Advisor Raj Seekumar. Even he admits this is a tough one: “This is a loaded question with a lot of talking points. People struggle with this decision; some do not know they have this option and fail to plan for it correctly. Every family is different. It’s important that you speak with a certified financial planner to discuss what’s most correct for your family.” He suggests that the main factors to consider include retirement age, health, value of the pension, your spending habits, whether or not your spouse also has a defined benefit pension, tax implications, RRSP savings, and your estate and legacy planning.
- Are you eligible for government pensions? Depending on your eligibility, you may receive three different types of largely non-taxable (depending on your province or territory of residence and eligible tax credits) pensions from the Canadian government: Canada Pension Plan (CPP), Old Age Security (OAS) (both of which are taxable) and the Guaranteed Income Supplement (GIS), which is non-taxable. If you’re eligible for all three, it could amount to nearly $24,000 per year per person. That may not be enough to live on, but alongside your other savings, it can help.
- Are you prepared for future health care costs? While we’d all love to believe we’ll have great health throughout our retirement, the fact is, we need to consider the possibility of health issues in our later years. And while our provincial or territorial health plans provide great coverage for many costs, there are still many expenses we have to pay for out of pocket, from prescriptions to dental and vision care, registered therapists, medical equipment and more. Setting aside savings for these costs is one option, but you can also consider a plan tailored to people losing employee benefits like FollowMe™ Health & Dental Insurance. You don’t have to answer any medical questions if you apply for it within 90 days of your employee health plan ending, which makes it ideal to consider before leaving the work force. What you pay in insurance premiums could be significantly less than what you might have to pay without insurance.
Manulife has plenty of retirement-planning tips to offer, including an online calculator to help you decide on the retirement income for a couple like you. With all these tips in your back pocket, you can decide how much you should contribute to RRSPs and other investment and savings plans, so you can live your fullest life in retirement.
Manulife, Stylized M Design, Manulife & Stylized M Design, FollowMe, and PlanRight are trademarks of The Manufacturers Life Insurance Company and are used by it, and by its affiliates under license.
financialpost.com, “Here’s what it costs to live in a retirement home – and the bottom line is less than you might think,” March 13, 2019.
Statistics Canada, “Working seniors in Canada,” November 29, 2017.
thebalance.com, “How to Make a Retirement Budget,” July 23, 2020.
moneysense.ca, “Planning for retirement with little or no savings to draw on,” July 9, 2020.