Category Archives: Retirement

How to cover lifestyle expenses before retirement care

How to cover lifestyle expenses before retirement care

JUSTIN TANG/THE GLOBE AND MAIL/Simpson and Judy/How to cover lifestyle expenses.

Original story is by Dianne Maley, in a special to The Globe and Mail.

We all need to plan ahead for retirement. No matter how you visualize how it will be later, it will always be difficult to get the lenses right. At best, you can use the personal experiences of your parents, your friends parents or that of known relatives.

It will be totally inappropriate not to get an idea of what that period of life will look like. Quite well, different countries and jurisdictions have rules and programs that are different from one another.

But the basic rule is still the same, plan ahead. For there is coming a time when, as a result of age and for health consideration, you will not be able to work like you are doing today. By virtue of an early start, or outstanding pre-retirement investment, you may be able to earn a passive income that will be close to today’s income.

How to cover lifestyle expenses – Simpson and Judy (not real name) example

Simpson and Judy have retired from the work force – Simpson from the government and Judy from financial services – and are planning to spend more time travelling.

While they are not prosperous, Simpson and Judy are comfortable. They bring in more than $80,000 a year before tax between the two of them in government benefits and pension income. Simpson’s defined benefit pension is $37,290 a year, rising with inflation. Judy’s work pension is about $12,200 a year, not indexed to inflation. As well, they both get Old Age Security and Canada Pension Plan benefits.

“No matter how well off people are, they can’t enjoy their retirement to the fullest if they don’t have confidence that they have enough.”

CLIENT DESCRIPTION AND SITUATION

People involved: Simpson, 71, Judy, 65, and their three children.

The problem: Determining how far their savings and investments will go. How to invest the proceeds of a cottage sale. And how to keep income taxes to a minimum.

Aspiration and plan: Set aside some money for health care later in life. Take full advantage of their tax-free savings accounts. Consider hiring an investment counsellor to build a more diversified portfolio.

The payoff: Confidence they can achieve their goals with no more worrying about financial security.

Interesting readers comments on Globe and Mail investing and personal finance column

From over seventy comments on the article in globe and mail, the four below provides insights into how some are thinking about retirement and classification of the wealthy. Personally, it got me thinking, which side do I belong, poor, average, prosperous or wealthy?

RELATED: Retirement Freedom Can Be A Trap

“On average, people live in a nursing home for less than three years, some five years, before they die.”

“We currently rent an apartment which is well-equipped with many amenities,” Judy writes in an e-mail. They own a lakefront four-season cottage. This is a former second home that they have decided to sell because they don’t use it much any more.

They plan to spend $15,000 a year travelling for the next decade. They are concerned they may have to tap into their savings or spend some of the proceeds of the cottage sale to cover their lifestyle spending.

As well, they wonder how best to invest the net proceeds of the cottage sale, estimated at $450,000. “How much should we put aside for long-term care support if needed?” Judy asks. “Would I be able to keep up our standard of living if Simpson should die and I lose half his pension?”

RELATED: Watch “Life after Work”

Globe and mail asked an expert to look at Simpson and Judy’s situation.

WHAT THE EXPERT SAYS

  • Simpson and Judy have worked all their lives and managed their affairs wisely.
  • They are financially independent, that is, they have enough to retire and maintain their lifestyle.
  • As strange as it sounds, they lack financial security, or the confidence that they have enough to achieve all their goals.
  • Based on an assumed 4-per-cent average rate of return and inflation of 2 per cent, they will have sufficient financial resources to maintain their desired lifestyle and achieve all their financial goals.
  • Their financial independence is largely based on their work pensions and government benefits
  • With $80,000 in pensions and government benefits, it looks like they have enough to cover lifestyle expenses and pay their income tax.
  • Their travel money will come from investment income.

Benefits of giving children an “inheritance advance”

At some point before they pass away, the couples are thinking if they could afford to give each of their children an “inheritance advance.”  The following may apply if they do so.

  • It will allow the parents to enjoy seeing the good they can do.
  • Siblings war tends to be strange. Distributing early would reduce the possibility that their heirs will quarrel over what might be a larger estate.
  • Giving the children some money would reduce the parents’ investment income. It would lower their income tax liability and the possibility of having their Old Age Security benefits clawed back.
  • It would help the children when they most need the help.

Experts recommends they hire an investment counsellor, and draw up an investment policy statement among others.

Nothing in this write up is an investment advise or a guide on how to manage your own personal affairs.

Read https://www.theglobeandmail.com/investing/personal-finance/retirement/article-couple-want-to-cover-lifestyle-spending-and-set-aside-enough-for/

Watch “Life after Work” on YouTube

Life after Work

WATCH “LIFE AFTER WORK”

Retirement freedom can also be a trap

Retirement freedom can also be a trap if one is not prepared. It can be a trap into cages called regrets, catch ups, make ups and getting worked up.

It’s easy to get so engrossed in the pressures of daily worklife that at age 50, it’s not unusual to still be asking the question, what is life in retirement all about? As a very dedicated worker, you give your all to work. But it is possible for you to realize late at retirement, that you have been left behind in other critical areas of life.

No highly valued golden chain – job security, benefits or rewards – is worth the suffering and laboring at a great or mediocre work life, if the end game is another chain trap – top regrets of retirees. We can be chained to a routine worklife that has killed dreams, though it gives most of what we seemingly want from life, now.

RELATED: Watch, ‘Life after Work’

Someone’s entire worklife can be very fulfilling, and it should be. But retirement is a time to experience a different type of fulfillment in life. A time to experience many enjoyable and rewarding activities. It does not mean a time of no work. How we all define work is very relative.

Retirement freedom and financial independence can come very early

For a few, retirement and financial independence can come very early in life. Some made their best move retiring early, and some others have regrets retiring early. However, the reality is that, for most people, retirement will come with ‘old’ age. Just like when we stepped into pre-school, college, then our working life, retirement is a blank sheet of paper. It is different if we enter into it at old age because it can send us back to pre-school.

Unlike pre-school, we do not have the benefits or disadvantages of life varied experiences, successes and failures. It is nevertheless a chance for us to redesign our life into something new, different, and maybe vibrant. Most life commitments done away with, and free from the shackles of ‘forced’ worklife.

More than half of retirees have retirement regrets. It is a painful part of your existence to wish you can go back in time and start all over again. To have a second opportunity to correct mistakes, love and express it, forgive before it is asked for or avoid devastating decisions. Ever wondered what you would say to your younger self at retirement?

Retirement offers a unique freedom that can only be maximized if you are prepared. When should retirement planning start? How should you prepare for retirement?

Send me an email and let us evaluate your personal circumstances.


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