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Life & Money

Financial Fitness Part 4. Setting the pace for the last lap, 55 to retirement

January 29, 2019

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Financial Fitness Part 4. Setting the pace for the last lap, 55 to retirement

Life & Money

In this round of Financial Fitness, WealthBar talks to those who are revving up for retirement. The race is on, so speed up for your last lap!

Congrats! You’ve almost made it to retirement! As you near the finish line, it’s time to take stock of your savings, your assets, and your future.

Once you retire, you’ll spend more than you make. You may still have family members who rely on you financially, or obligations you need to pay, even when you’re not earning an income. Now, you may have to save up even more than you think.

At 55-plus, you survived a challenging childhood, thrived through your thirties, and muddled through middle age, so there’s a good probability you’ll beat the average life expectancy by a wide margin. In fact, you might just be on track to live through your 80s, 90s or beyond. And now you have to keep yourself financially fit for a long time to come!

So, now is the time to save up, pay down your debts and hit the financial gym even harder so you’re in great shape for after you stop working. Ready to hit the home stretch?

Those who stay on track with WealthBar save more — a lot more

  Investable assets
Age WealthBar Client Canadians WealthBar clients are X% richer
55 to 64 $437,375 $317,600 37.71%

(How did we get these numbers? WealthBar numbers were derived using the average total investable assets as reported through client account applications. For Canadians’ investable assets, we took our numbers from Statistics Canada.)

Family first. Time to have some honest conversations about money

How much are you saving for retirement? It depends… on your dependents. Savers can get slowed down in their last laps to retirement because they avoid frank (and necessary!) conversations about money… and then face the consequences.

The kids may have left the roost, but they may still be expecting some kind of financial assistance into your 50s and 60s. And then there are your own parents. Do you know what kind of care they’ll need?

So, you need to have an honest conversation with all involved and the sooner, the better. Give them some insight into your retirement planning. Be transparent about your expenses. To do that, you’re going to need to review your financial plan and retirement projections at least once a year. If your financial bandwidth is limited, then having this kind of conversation will make them less likely to depend on you — giving you more financial options. Help them understand what’s important to you.

Spot each other for life with a spousal RRSP

Many people in their mid-50s to mid-60s have a significant other who will also be retiring soon. They may also have past partners who they pay child or spousal support to.

There are two things to consider here. First, factor estate planning in with your financial planning. That means creating a will, and naming your executors and Power of Attorney. That way, no one’s in the dark about their financial responsibilities, or how assets will be divided.

Second, look at your options for registered retirement savings plans that will benefit both you and your partner. Spousal RRSPs are great if one spouse earns more than the other. Maybe one has a company pension or business income. It can help one partner to enjoy lower taxes by contributing to the other’s retirement savings.

Get the insurance you need, and get rid of the insurance you don’t

How much insurance do you need? Just 26% of Canadians said they carefully reviewed their insurance needs in 2016-2017.

You’ll want a policy that provides coverage only for what you need. No more paying through the nose for add-ons you’ll never use.

If you’re in your 50s and your mortgage is getting close to being paid off… are you over-insured on that? You set up life insurance policies to make sure your kids’ education was funded… but now they’re out of university. Perhaps you had insurance through work, which will end when you retire. How will your insurance needs change? Best to have this chat with your financial adviser sooner than later.

Lift that massive weight of your mortgage off your shoulders

In most cases, you’re going to want to pay off your mortgage before you hit retirement. You’ve got 10 years, which is plenty of time to make a serious dent.

When you first bought your place, extra lump sum payments may have seemed like a luxury. But if you’re in your prime earning years. You’ve been able to sock away some significant savings. Now’s the time to push that debt down (up to the limit, of course. Your mortgage agreement will have rules around how much of an extra payment you can provide without getting penalized).

If you’re self-employed, you may have heard there are tax efficiencies that come with still having a mortgage into your later years. But let’s face it, self-employment in a lot of cases means unsteady cash flow. It is riskier to bear debt, when you can ill-afford to take a hit to your income.

There’s little-to-no downside to paying off as much of your mortgage as possible before you lose a bulk of your cash flow. If that cash flow is heading into the red, consider downsizing (a little earlier than scheduled, perhaps). That way, you retire without debt.

Remember, you’re not quitting the financial fitness gym just yet

As retirement draws closer, a greater proportion of your cash flow needs to go towards your financial goals, not short-term wants. It’s crunch time! Review your investment portfolio. And in the last lap, flex your muscles and direct money to where it’s needed most: supporting the life you want to live in your golden years.

You’ve stayed financially fit this long — are you ready to turn this marathon into a sprint to the finish? We’d love to hear your thoughts.

A few minutes today could save you thousands tomorrow.
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