If 65 is the new 55, today’s generation needs to plan for a longer and more active retirement.
And 40% of Canadians say retirement was the first time they had to spend on the hobbies they love, finds TD.
“Traditionally, we used to consider life’s firsts as getting married, buying a house, starting a family and then celebrating retirement,” says John Tracy, senior vice president at TD Canada Trust. “But today, people are living longer and are more active in their retirement than previous generations — that means they need more money to sustain their quality of life and retirement dreams.”
He says the key to enjoying a full life in retirement is smart financial planning.
Read: Young Canadians anxious about retirement
Here are some factors to consider:
1. Taking up a new pastime
Hobbies can be expensive, particularly when you’re living off a reduced income. In fact, 22% of retirees admit retirement was the first time they were worried about money. One way to alleviate these worries is to reduce or eliminate debt before retirement.
“Boomers who carry a large chunk of debt into retirement, will have to carve out a bigger portion of their RSP to cover repayments and living expenses, which will translate into a higher taxable income and less spending money,” says Tracy. “If money is tight, look for ways to compromise on expenses to pay off your mortgage and other debts faster.”
Read: RRSPs are more than tax tools
2. Buying a vacation property
Buying a lakefront cottage or condo as a warm-weather vacation home to use as your primary residence in retirement seems idyllic. Tracy recommends planning ahead for the tax and financial implications.
“Today’s low interest rates may be tempting, but remember you can’t rely on just one asset, like a house, to fund your entire retirement because you will still need sufficient cash-flow to replace your regular income,” he warns.
3. Travelling the world
Planning ahead and saving early is key, especially when your retirement includes travel. A TFSA can be a great tool to start saving now, because your money can grow tax-free and may be withdrawn tax-free at any time.
“Regular contributions let you benefit from compound growth and dollar cost averaging. If you’re still decades from retirement, you may consider weighting your TFSA with growth assets like stocks and mutual funds and making up the balance with more conservative holdings like bonds or GICs, depending on your situation.”
Read: Educate clients about TFSA stipulations
4. Starting your own business
Boomers thinking of pursuing a new business plan must understand and prepare for the investment required.
“If you dream of owning your own business and working well into your golden years, it’s still important that you prioritize retirement savings in your peak earnings years, both to save enough for your new venture and as a safety net. To mitigate the risk inherent in a new business, you may consider holding more conservative products in your RSP, such as GICs.”