Turning 50: Some Things To Consider
When you get to your 50’s you’re probably in your peak earning years and you may have significantly lower living expenses. The expensive years of home purchase and parenthood are likely behind you and you’re in better financial shape. Think about how much of your income should go towards your retirement and contribute as much as you can. You should be saving at least 15 to 20% of your income.
If you are contemplating early retirement you are going to need even more. If you have a company pension plan, quitting at 60 will probably reduce payouts by one third and leaving at 55 may lop off half. You are not only going to have a longer retired life, inflation will erode your payments longer.
Related: Why Baby Boomers Aren’t Prepared For Retirement
Any job changes now should be looked at closely in the light of company benefit plans.
Where will you live?
It’s not too soon to think seriously about where you’ll want to live in retirement and to make plans based on your decision. If you are still living in the family home that feels extravagant now that the kids have gone, you may want to create a rental unit to produce income (subject to local zoning laws).
Related: Should You Sell The Family Home?
You’ll be able to claim a portion of expenses against the rental income. An accountant can explain to you how to claim maximum capital cost allowance to reduce the net rental income even further to pay less tax. However, claiming depreciation means a later sale of the house will attract capital gains tax. Make sure you get all the details clarified.
If you will one day sell to move into something smaller, keep the house in good shape now by keeping it well maintained.
If you are planning on moving into a condo or rental unit, figure out the effects of a decade or two of inflation on the management fees or rent payments. What looks like a good deal now may become impossibly expensive when you reach your 70’s and 80’s.
Related: Does A Reverse Mortgage Make Sense For Seniors?
Allocating your savings
The way you apportion your retirement savings will depend greatly on your circumstances. The more you have saved, the more you can go for growth. If you have little saved you might go for more safety of principal and income, especially if you will not be receiving any money from a company pension plan.
Related: Using Tax Free Savings Accounts In Retirement
Alternatively, if you have enough saved to provide you with a comfortable income, there’s no point in taking on additional risk. You don’t need it.
Now is the time for a financial review. You may also want to consider how you’re going to turn your RRSP into retirement income. Check that you have the right mix of investments to ensure a secure and comfortable retirement.
Other valuables
By now you may have accumulated some valuable possessions – antiques, jewelry, etc. – which you might be tempted to sell to create a retirement fund. Don’t be too drastic too soon. If the inflation rate soars in the future your tangible articles may command higher prices as your cash devalues.
A comfortable future takes planning
There are plenty of reasons why people put off planning for their retirement. The future has a way of arriving faster than we ever thought. No matter how well you are doing today, making sure you have the financial resources you will need for a secure future takes careful planning.
Great article. I think too many people don’t have a complete plan on how everything will work come retirement. A lot of people are buying second vacation/rental homes that will create extra income. If you have paid off the mortgage on your main residence than this is a great idea.
People avoid planning because it means sacrifice today for the future. Unless they can see the future, it is a sacrifice that does not appear to be necessary. Failure to plan is planning to fail!
The new generation will be turning 50 with kids at home I would say since many have children in their 30’s now.
I like what krantcents said 🙂
Chances are that anyone who has kids is forced to plan much better. Yet, many are still failing to plan ahead.
@Passive Income Earner: This is very true not only having kids later in life but also home ownership.
That makes it more important to start saving early, before the big expenses, and take advantage of compounding.
I tend to forget that we were in our early twenties when we purchased our first home and our kids were already in school by the time I hit thirty.
Great article. I think multi-generational households are the way of the future. Home prices are too expensive. Even if they drop more, sellers who won the housing lottery and bought early on are unlikely to settle for lower prices and buyers are unlikely to pay for what they know is an overpriced piece of property.
Re: claiming capital cost allowance on a house. Never, ever do this! If you have lived in the house this triggers a “change in use” and complicates your tax situation immensely. Also, as stated when you sell and actually make money on the sale (which you most likely will do), the CCA you took will come back to haunt you as “recapture” which is fully taxable not as capital gains which only 50% of that is taxable.
It would be very unusual for an accountant to ever recommend taking CCA on a house.
We started having children late in life and I fully expect to have at least one child living with us until I’m 60. Stinks for me, but we plan on keeping our house as our home base and traveling. The mortgage will be paid off in a few years so expenses will be low. Rental property income will cover our living expenses by then.
I agree with krantcents. They key is to make sacrifices early. But that is not the American way anymore.
Great advise but hopefully these things were thought about before then.