Wealth Strategies: Strategies for a Longer Retirement

Planning for a longer retirement in Canada has become increasingly important as life expectancies continue to rise with advancements in medical technology, improved social and lifestyle behaviours, and public health initiatives. It is important to note that life expectancy is not an estimate of when you may pass away. On the contrary, it is just an average, meaning you could end up living much less or much longer than your current life expectancy. The current life expectancy in Canada is 83.11 years compared to 2000 when it was just 78.58 years. Based on these improvements in life expectancy, it is important to develop a plan that takes into consideration tactics to ensure a comfortable retirement. 

A list of strategies to help plan for a longer retirement include: 

• Start saving early and consistently. The power of compound growth means that even small amounts saved in your younger years can grow significantly over decades. Maximize contributions to tax-advantaged retirement accounts like Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) as early as possible in your career. 
• Create a comprehensive retirement budget. Estimate your expected expenses in retirement, including housing, healthcare, travel, and other lifestyle costs. Factor in inflation, which can significantly affect your purchasing power over a long retirement. For example, a $100 purchase made in 2013 cost about $129 in 2023. 
• Optimize government benefits. Canada Pension Plan (CPP) and Old Age Security (OAS) are valuable income streams that are guaranteed, paid for life, and indexed to inflation. Consider delaying these benefits until age 70 to maximize your payments. Delaying CPP to age 70 results in a 42% increase per year in benefits compared to taking it at 65, while deferring OAS to 70 increases benefits by 36%. 
• Diversify your investment portfolio. As you approach retirement, gradually shift to a more conservative asset allocation to protect your nest egg. However, maintain some exposure to growth assets to help your savings keep pace with inflation over a longer retirement.  
• Consider working longer or transitioning to part-time work. Delaying retirement even by a few years can significantly boost your savings and reduce the number of years you will need to fund in retirement. This "victory lap" retirement can help ease the transition from full-time work to full-time leisure. 
• Plan for healthcare costs. While Canada has a strong public healthcare system, consider additional health and dental insurance, long-term care insurance, or private travel medical insurance for trips outside Canada. For those with means, private medical services may also be worth taking advantage of. 
• Develop multiple income streams. In addition to government benefits and traditional retirement accounts, consider rental property income, annuities, or other passive income sources to provide financial stability throughout a long retirement. 
• Regularly review and adjust your plan. As you age, periodically reassess your retirement strategy, investment allocations, and spending plans. Be prepared to make adjustments based on market performance, health changes, or shifts in your goals. 
• Consider downsizing or relocating. Moving to a smaller home or less expensive area can significantly reduce expenses and potentially free up home equity to fund retirement. Explore options within Canada or even retiring abroad, keeping in mind the potential impacts on taxes, pensions, and healthcare. 
• Insurance provides the ability to transfer wealth tax-free to beneficiaries, can provide supplemental retirement income if the policy has a cash value, can diversify your portfolio, as well as provide estate preservation by covering final taxes, as just a few examples. 
• Use financial planning tools and seek professional advice. Milestone Wealth Management is happy to assist our clients with comprehensive and dynamic financial plans that can be continually revisited and customized to a variety of specific goals. Our dynamic financial planning software offers best-in-Canada technology solutions through a vast array of features including built-in AI (Artificial Intelligence) for tax and estate planning optimization, stress-testing, and real-time alternate strategy implementation. It also features full integration of more complex planning needs for those with corporations and family trusts. 

By implementing these strategies and regularly reviewing your retirement plan, you can better prepare for a longer, more financially secure retirement. Remember that it is never too early or too late to start planning - the key is to take action and remain flexible as your life and circumstances change. As our clients’ Complete Family Office (CFO), we have developed and refined a process that puts all the pieces of their financial puzzles together for them as their lives unfold and their needs evolve, never losing sight of what matters to them most and bringing them peace of mind. Feel free to reach out to us for a complimentary introduction meeting. 

 

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DISCLAIMER: Opinions and estimates are written as of the date of this report and may change without notice. Any commentaries, reports or other content are provided for your information only and are not considered investment advice. Readers should not act on this information without first consulting Milestone, their investment advisor, tax advisor, financial planner, or lawyer. This communication is intended for Canadian residents only and does not constitute as an offer or solicitation by anyone in any jurisdiction in which such an offer is not allowed. 

Sources: Government of Canada, MoneySense, Financial Post, Globe & Mail