Financial Management By The Decade – The 60’s
Your retirement should be almost within reach (if you are not already there) and all those years of saving are over.
This is the decade when government pensions kick in. You can start collecting a reduced CPP as early as age 60 and, if you are close to this age now, OAS at 65.
This is the time to fine-tune your plans to help ensure a smooth transition. You should be gradually trying to figure out the kind of retirement lifestyle you’d like and draw up a realistic budget. That in turn determines how much you still need to save.
6% of people in their 60’s have kids still living at home.
30% are helping support adult children.
At this stage you still have lots of options. You may want to retire early, or change jobs and do something you love more even if it’s for less money. If your finances are tight you may need to think about working longer. Delaying retirement for two or three years can have a big impact. You’ll be able to draw more each year from your nest egg and your government pensions pay more each year if you start them later.
70% admit they didn’t personally choose their retirement date.
You may need less than you think
Living well can be cheaper in your 60’s. Enjoying a typical middle class lifestyle costs less than you think. You’re probably no longer making mortgage and debt payments, supporting children, and covering work expenses – and you will no longer be saving for retirement.
With reduced spending, you need less income, so your taxes go down too. Also, you benefit from extra tax breaks specifically for seniors.
A comfortable middle class retirement costs about $42,000 – $72,000 per year per couple (or $30,000 – $50,000 for singles), provided you have your home paid off.
Have the basics covered and plan on a little bit of spending for fun things like entertainment or travel.
Make it last
Now is the time to adjust your portfolio for retirement. For most people, CPP (or QPP) and OAS will replace less than 40% of their job income. You’ll probably have to rely on your own savings for extra cash.
This is a good time to reduce the overall risk level of your investments by increasing your allocation of short-term bonds and/or GICs. You still need the inflation-beating returns of equities, but be particularly wary of the potential impact of a big downturn in the market, especially in the first few years. You will have less time to recover.
At the start of retirement ensure you can generate 5 – 10 years of cash flow for at least your basic needs. Make sure you have some combination of pensions, dividends, bond interest, bond or GIC ladders, annuities and a reasonable reserve of cash.
Plan to withdraw from your portfolio in a tax-effective manner. Take a balanced approach between withdrawals of taxable and non-taxable sources to even out taxes and clawbacks.
Worried about running out of funds?
What do you do if your savings won’t provide enough money to pay for the retirement you would like? You can always earn more income with contract or temporary work, setting up a small business, or working part-time doing something you enjoy.
Often there are other things you can do to bolster your finances like downsizing or relocating to a less expensive location.
You could also consider longevity insurance, which is designed to provide a guaranteed income for life once the policyholder reaches old age – typically around 85.
Everyone needs an estate plan
A proper estate plan will ensure that your hard-earned money goes to your loved ones as much as possible – with as little as possible going to the taxman.
It’s well worth paying a lawyer to draft up a will. A lawyer can also help you with medical and financial powers of attorney. Once that’s done, it’s crucial to talk to your family about the contents.
In general, a surviving spouse won’t have to pay tax on most assets left to them. The biggest hit comes when assets are transferred to the next generation. If you think it’s necessary, talk to a lawyer or accountant about gifting assets, spreading out capital gains over time, or designing a testamentary trust.
Final thoughts
Average age of retirement is 62.
You should aim to develop an active lifestyle that combines recreation and social activities that keep you healthy, fit and engaged in life. You may continue to work but hopefully, because you want to rather than because you have to. Volunteering can be a meaningful way to stay active.
Make sure your plans are in line with the resources you have to fund them. Prepare for contingencies and make adjustments whenever circumstances change.
Financial takeaway for your sixties – Assess and reassess.
Also read:
- Financial management by the decade – Teen years
- Financial management by the decade – The 20’s
- Financial management by the decade – The 30’s
- Financial management by the decade – The 40’s
- Financial management by the decade – The 50’s
Thanks for the article! You mentioned potentially using short term bonds to help fund the retirement. Can you please explain the reasoning behind using short term bonds? (instead of a long term bond ETF for example)?
Thanks!
@Kornel. The idea is to have readily available cash investments (such as laddered GICs and shorter term bonds) for your income needs so you aren’t forced to sell losing investments in a market downturn. Long-term and real return bond ETFs and mutual funds can also drop in value. However, they can still form part of your overall portfolio strategy.
On social activities. Once retired you have 50 hours to fill that were once occupational. You will need to be good at alone time, because little is on offer for those hours unless you move into some sort of retirement community. This is even true of retirement-age meetups, etc. They all tend to be in the hours that you always had free. I am really good at being alone, but I have found retirement pushed me beyond my natural limits of being a hermit.
However, you could do more weekend and evening activities and use those socially empty hours for recovery.
Are you still practising your stone work, Robert? They say it takes 10,000 hours to master your craft. 🙂
Absolutely. I am nowhere near my 10,000 hours yet. I have been on Nanny duty a lot!
As someone who curls or plays ball with people who are retired often tells me that they’re more busy in retirement than they were when they were working but it’s enjoyable.
They find more time to curl (days instead of evenings), volunteer using their former work skills one or two days a week and explore new activities that they’ve always wanted to try but never had the time.
The key, from what they’ve all told me, is to start doing some of the new activities while still working and also advised to semi-retire where possible to adjust to the transition.
That’s good advice KC. You can always learn from your elders. 🙂
Since we moved to PV for 6 months, we have made new friends who are all in the leisure class. When we return north, we are busy catching up with our older friends. So far no problem except February when many northern friends come to join us in PV for 1-2 months. Then it is hectic.
Could you please elaborate on your statement regarding talking to a lawyer or an accountant about “spreading out capital gains over time”. What is involved in doing this?
For people who have substantial non-registered investments and property, such as the family cottage, or a business, there are various strategies to minimize capital gains such as through trusts, strategic withdrawals, and charitable giving.
You need a fee-based financial planner and the idea is sell off some high gain holdings each year so as to minimize the tax bite. As long as the proceeds do not put you into a higher marginal tax bracket.
Thank you for your quick response. I was most interested in your example of a family cottage that will be deemed sold and will incur capital gains. Can I assume from your answer “capital gains can be distributed over time through, for example, trusts, strategic withdrawals and charitable giving” that there is some kind of a trust that could be used to spread out the capital gains incurred from a family cottage over a period of time? Strategic withdrawals and charitable giving would not seem to apply to a family cottage. I imagine one would have to weigh the cost of setting up a trust vs the amount of expected capital gain. Also, is it possible for an owner of a family cottage to pay the capital gains without selling the cottage before it becomes part of an estate?
If the owner changes title, adding sons & daughters for example, then capital gains can be triggered but also transfer taxes must be paid
@Darby: I will refer you to this 3-part series by Mark Goodfield, CPA
http://www.canadiancapitalist.com/transferring-the-family-cottage-there-is-no-panacea