Retirement, like most things in our society, looks vastly different for the current generation compared to the ones that came before. For the Baby Boomers, retirement was, and still is, expected to be a time of “rest and relaxation.” They were mostly able to build up substantial nest eggs through pension plans at work and equity from homeownership, and then supplement those with government benefits that they’d paid into throughout their working lives.
But as Generation X approaches retirement age, and as Millennials begin to feel creaks in their knees, they’re staring at a starkly different landscape. Today, most recent or soon-to-be-retirees see it as a “new chapter in life” – a time to “reinvent themselves.” In other words, they mostly expect to still be working in some form or another.
That prediction makes sense when you consider the much higher cost of living in Canada, along with the propagation of the ‘gig economy’, wherein workers do not have a pension plan through their jobs. It’s much harder to plan for the future in these circumstances – and indeed, only a third of those within ten years of retirement report having a thorough financial plan.
It’s never too early, or too late, to get your financial house in order and start to plan for the golden years. Clinton Orr, one of Canada’s top Wealth Advisors with Canaccord Genuity Wealth Management in Winnipeg, provides some tips on how to think about retirement in this challenging financial environment.
Diversify your Investment Portfolio
Step one, according to Orr, is to grow your savings through a range of long and short term investments. “As an advisor, I recommend investing 10% of your paycheque and spreading this around in a variety of different sectors,” says Orr. “You’ll need this steady income from investments when you step back from working life.”
There are secure but less lucrative options, like a GIC (Guaranteed Investment Certificate), which locks in your money for a set term. Once it’s matured, you’re able to withdraw the amount with interest. But Orr cautions against relying on this option exclusively.
“You don’t want to lock up all your money in GIC’s,” says Orr. “There are much lower interest rates here than with other investments. It’s wise to allocate a portion of your investments to them because of the security and the guarantees, but you’ll hamstring yourself if you lean on this too heavily. You’ll just miss out on much better opportunities.”
Orr recommends researching alternative investment opportunities in sectors traditionally meant for bigger funds like pensions or endowments. “A wealth manager can help you explore avenues that are just opening up to retail investors in Canada. There are some exciting prospects here that can really help set you up nicely if you find the right ones.”
Budget for Inflation
We’re all too aware of the skyrocketing inflation rates in Canada, which are reaching levels not seen in over 40 years. The inflation rate currently sits at 4%, which is slightly lower than the previous few months but much higher than the long term average of 3.15%. And we still have fresh memories of the 8.3% rise in prices that we saw from the spring of ‘21 to the spring of ‘22.
Clinton Orr tells his clients to budget for these types of unforeseen events. “I build in a cushion for my clients to allow for higher inflation rates. We try to anticipate any macro-level shifts in the economy that can take a bite out of your carefully managed retirement savings.
“It’s always better to be prepared for these kinds of events and be able to adjust to them when they come.”
Be Open to Reverse Mortgages
Too many Canadians believe that if they’re homeowners, their retirement plans are set. This is increasingly proving to be a fallacy, even as home prices go through the roof in our major cities. It’s just not enough to allow retirees to live the lifestyle that they want.
Orr recommends exploring the option of reverse mortgages that are available to homeowners over the age of 65. “Reverse mortgages are loans that are tied to your home equity. You don’t make any payments on them until you sell, move out or pass away. This is not something to try to navigate on your own – be sure and consult your wealth manager to best manage the costs of this, which can be high.”
But if you’re what someone may call “house poor”, and you’re finding it hard to meet other expenses, including your savings goals for retirement, this may be a good option for you.
Be Ready to Downsize
Orr says he advises clients to think about what their lifestyle will be like when they retire, and to start planning for a downsizing of their lives. “The cost of living in our cities is growing so high, and I often recommend that clients consider whether a small-town lifestyle could suit them and their budget more effectively.”
Retirees often use the money from selling their homes to buy something smaller and more efficient in a less expensive locale. “I’m not talking about moving to South America, although that does appeal to some of our clients. But moving to a suburb, or even an idyllic small town in the mountains or near the coast, can be a great option to help clients afford the lifestyle they’re accustomed to.”
Another option is to renovate your home to allow for younger family members to move in. “I always make sure my clients know about the generous tax credits that are available for renovations to accommodate multi-generational living. Canada has made this a priority, and a lot of my clients take advantage of these incentives.”
Plan!
The main priority, says Orr, is to have a strong plan.
“Canadians typically have three sources of retirement income – the CPP, which you can apply for at age 60; the OAS, or Old Age Security, which you can start receiving at 65. Then there are your pension plans, your personal savings, your investments. Your nest egg. It’s essential that you go over all your RRSP (Registered Retirement Savings Plan) and TFSA (Tax Free Savings Accounts) options, all your investment avenues, with an experienced financial advisor sooner than later. If you still want to make more than half of your current income when you retire, start planning for it now.”
CG WEALTH MANAGEMENT IS A DIVISION OF CANACCORD GENUITY CORP., MEMBER-CANADIAN INVESTOR PROTECTION FUND AND THE INVESTMENT INDUSTRY REGULATORY ORGANIZATION OF CANADA
The comments and opinions expressed in this article are solely the work of Clinton Orr, not an official publication of CG Corp., and may differ from the opinion of CG Corp’s. Research Department. Accordingly, they should not be considered as representatives of CG Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this article, is for general information only, does not constitute legal or tax advice, and the author Clinton Orr does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or CG Corp. assume any liability.
Tax & Estate advice offered through CG Wealth & Estate Planning
