Retirement. It’s more than a word and a congratulations card from former colleagues. Retirement is a transition. It’s a step into a new way of life and a different style of living and while the process can be exciting—filled with the promise of adventures—it’s also a time in your life that requires a lot of decision-making and planning.
To help you make the transition, it’s important to answer a few questions.
1. Are you financially ready for retirement?
It’s a scary question to answer and if you don’t know the answer, take heart: most Canadians don’t. According to a 2015 BlackRock global investor survey, more than 50% of Canadians don’t know how much they need to retire and are not quite sure if they’re ready to retire.
What makes matters worse is that we can’t actually rely on government benefits, alone, to help fund our retirement years. According to Malcolm Hamilton, senior fellow at the C. D. Howe Institute, only low-income earners—those making minimum wage or less throughout their entire working lives—can count on government benefits to give them a standard of living they are accustomed to; everyone else will need to strategically maximize their savings—money that will be used to pay for living expenses during their non-income earning retirement years.
As daunting as the answer may be, it will help any pre-retiree focus in on exactly what needs to be done to make the transition into retirement a smooth, enjoyable one.
2. How much can you expect from the government?
The first place to start is to determine how much you’ll need to live comfortably in retirement. Expect about $30,000 in combined annual CPP and OAS payments, once you and your spouse stop working, says Hamilton. While, you may not be able to count on government benefits to fully fund your retirement, take comfort in knowing that these benefits will significantly help you and your spouse when it comes time to transition into your non-income earning years.
3. Have you applied for your benefits?
If you worked and paid taxes in Canada, then you’re eligible to collect the Canada Pension Plan (CPP), but these benefits aren’t sent to you automatically; you must apply for it. For an application kit you can either go to a local Human Resources and Skills Development Canada office in your area, or go online. Other government benefits to consider include the Old Age Security (OAS) program, as well as the Guaranteed Income Supplement and the Allowance for low-income seniors. Remember, you’re only entitled to OAS and these other benefits when you turn 65.
4. Have you considered tax-saving strategies?
Finally, one great way to maximize your retirement funds is to use smart strategies to slash your income taxes. For instance, if you’re between the ages of 65 and 71, and still working, you can save big on taxes by setting up your Registered Retirement Income Fund, or RRIF, early. Most people don’t open an RRIF until age 71, but if you’re not receiving income from a pension, it pays to do it earlier.
5. Do you need to downsize? (insurance, asset list etc.)
For some, retiring could mean downsizing the home to a place that’s more manageable, for others it’s about dividing the time between friends and loved ones in Canada and a snowbird retreat in a sunnier climate. Whatever the reason, moving in retirement is a popular choice.
If you are considering a move, make sure you pay attention to how this impacts your insurance coverage. While a move to a smaller place could mean a reduction in your home insurance, it could also impact your car insurance (as rates are based on a number of factors, including the geographical of where you live). To get a better understanding of how a move or a purchase of a vacation property will impact your insurance needs, make sure you call and talk to your independent insurance broker.
6. Are you planning to travel?
The great advantage to being retired is that you can take those vacations you’ve been putting off all these years. While this can be an exciting part of your retirement planning, it’s also an opportunity to confirm that you and your belongings are adequately protected with the right kind of insurance.
For instance, if you’re a snowbird that spends more than 48 hours away from their home—and many will spend as much as 100 days down south during the winter months—you’ll need to talk to your independent insurance broker to determine what needs to be done to make sure your home insurance isn’t invalidated. That’s because many insurance providers will no longer honour a claim if you haven’t taken precautions to protect your home from weather-related loss or damage, while you’re away.
You’ll also want to discuss travel and medical insurance, particularly if you plan on spending time in the United States. Neglect this coverage and your trip costs could easily balloon well past the $100,000 mark.
7. Will you require additional insurance?
Quite often as we age we start to acquire new hobbies and new interests—and this can often mean the acquisition of new toys. Recreational vehicles, a classic car, or even a foray into digital photography (and all the computer equipment that’s now required of this hobby) can mean the purchase of expensive equipment—equipment that may not be covered under your typical home insurance policy.
Most home insurance policies will limit coverage for specific types of goods to $1,000 or $3,000, but as we all know a new ATV starts at $10,000, while a classic car or RV can easily dig into the bank account by $50,000 or more. For that reason, it’s a good idea to talk to your independent insurance broker. By discussing your recent, or even planned, purchases, you discover what type of coverage is available, based on your hobby, needs and usage expectations.
For example, if you plan on using your new ATV to go trail-riding on property that you do not own, or you’ll be crossing public roads or parking lots, then you’ll need adequate insurance coverage not just to protect your ATV purchase, but also to protect you from should a collision with another vehicle occur, or an accident on a public road.
By discussing your current coverage and your future plans, you and your broker can find cost effective insurance solutions that gives you peace-of-mind without breaking the budget.
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