Your 70’s is the decade in which you’ll find yourself slowing down somewhat and you may want to simplify your lifestyle. This means your spending will likely slow down too.

Convert your RRSP

You’ve worked hard to build your RRSP. Now it’s time to take your money out.

By the end of the year you turn 71 you must close out your RRSP and convert it into either a RRIF or an annuity. Or, if you want, you can convert a bit to both. There’s no immediate tax consequence. You’ll pay tax only on the payments you receive from your annuity, or on the withdrawals you make from your RRIF.

Option #1 – RRIF

If you want to maintain control of your investments, you may want to put your retirement funds into a RRIF. You can use a RRIF to hold the same types of investments as in a RRSP; in fact you could just convert the existing portfolio. You can no longer make contributions, and you must withdraw a minimum amount each year. This minimum begins at 5.28% of the total in the year after your 71st birthday, and rises to 20% a year when you hit 94.

The downside of a RRIF is your investments may perform badly and, now that you’re not working, it may be impossible for you to recoup those losses to your portfolio. Also, the minimum withdrawal limits may force people with large RRIFs to withdraw more than they really need, thus exposing them to a tax hit.

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To reduce the amount you must withdraw, you can use your spouse’s age at conversion. This can work especially well if your spouse is quite a bit younger.

Option #2 – Annuity

Taking out an annuity can be the most stress free way of turning your savings into a steady stream of retirement income, especially for those worried about outliving their savings. It can supplement CPP and OAS payments and mandatory RRIF withdrawals.

In return for a lump sum, the annuity provides you with regular, guaranteed payments. The amount you pay depends on your age and sex, as well as other factors. Most annuities pay more if your get them later in life.

Annuities come in many forms and they can be complex.

They can be indexed to inflation. You can get one with survivorship so your spouse can still receive payments after you die. Many people worry that if they die within a few years of purchasing an annuity, their heirs will wind up with nothing. For that reason, some annuities have guaranteed payouts for 10 or 20 years.

Once you’ve purchased an annuity, you’re locked in, so it’s vital to investigate them carefully first. Talk with someone who knows the field – and has no vested interest in the product – before you buy.

Annuities are not well suited for everyone, particularly those in poor health or reduced life expectancy.

Retirement home or retire at home?

72% in this age group own their homes

There will likely come a time when you probably won’t be able to physically do as much as you can now, from climbing stairs to shovelling the side-walk and doing home maintenance.

Instead of selling your house you may decide instead to hire a maid service for house cleaning and a lawn-and-garden service to do yard work.

Many seniors find that additional support from family members or from paid home care providers in the family home works better for them. Be realistic, though, about how much help family members can provide.

83% find that paying for at-home care as needed is the most appealing arrangement

You may think of renovating to make your home more senior friendly e.g. walk-in shower or bathtub, grab bars, stair lift, and non-slip flooring.

Renovations may create tax deductions or credits under several federal and provincial programs.

If you don’t want to deal with stairs or maintenance on your large house, you may decide to downsize to a one-level condo or apartment.

Many people move into a retirement home in their late 70’s or early 80’s.

Several helpful directories list retirement homes across Canada.

A paid-for-home can be a kind of reserve fund that would help cover high care costs that might arise later in life. You can sell the house to cover costs if you move into a retirement home when you are too frail to live completely on your own. In-home care can be paid from a reverse mortgage or Home Equity Line of Credit.

Plan your legacy

If you haven’t done so already, the 70’s are a good time to plan your financial legacy – giving money to charities or family members. You should think about how to pass on financial assets that you might not need now to your heirs and/or charities while you are still alive.

Make sure your will is up-to date. If you own a business, draw up a succession plan to sell or transfer the business.

Consider how you want to break down any inheritance you want to leave:

  • Specific assets you want each child or grandchild to have.
  • Amounts to cover specific costs such as university education or contributing to a home purchase.
  • Charitable giving.

And, you may want to give away some money now instead of leaving everything to your estate. Make sure you calculate how much you’ll need for your own financial independence going forward.

Setting up trusts can help you pass money on to heirs and charities tax-effectively. For example, a family trust can be a good way to give to children or grandchildren at lower tax rates, while continuing to allow you access to the principle at any time if you need it.

Financial takeaway for your seventies – Simplify your lifestyle and plan your legacy.

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8 Comments

  1. Gayle Clow on March 30, 2016 at 5:13 am

    Do you have information on or an evaluation of different annuities that you could publish?

  2. morgan on March 30, 2016 at 6:29 am

    Trusts are not the tax advantage that they once were. As of January 1, 2016 trust tax rules changed dramatically.

    • boomer on March 30, 2016 at 9:58 am

      @morgan: Annuities purchased by converting an RRSP still carry the tax savings advantage of all registered plans – i.e. payments are taxable in the year they are received.
      The new tax regulations apply to non-registered funds and depend on when they are/were purchased.

  3. rhonda caplan on March 30, 2016 at 11:18 am

    thrre was mention of whatis needed for a comfortable lifestyle with 45k to 70 k if you owned a house.
    Without a house the same $$ leads to a moderate lifestyle.
    Is that after expenses of a homeown3r……gardens,snow shoveling,heat hydro etc…….
    my friend owns her home,and I rent. Can you explain why she would have a more cofortable lifestyle as suggested.
    Also would love more articles about single retired woman,and their financial picture with about 45000 dollars,renting,and no pension.
    Thanks we would love a reply.

    • boomer on March 30, 2016 at 6:12 pm

      @Rhonda caplan. According to a recent BMO report, the average spending of retirees is $42-$72,000 per year, for people with no debt and a paid for home. This is considered middle-class by them, which to me sounds the same as moderate and comfortable.
      A paid for home still has costs – utilities, property taxes, home insurance and maintenance. Some of these costs are not borne by renters (or are reduced) so, depending on how much you pay in rent, it might equal out.
      Watch for a future post on single retirees. Thanks for reading, Rhonda.

  4. Gail Bebee on March 30, 2016 at 1:50 pm

    This article I wrote about annuities last year provides more information about annuities.
    Of note, true inflation protection is not available. Rather, you can choose an annuity that increases by a fixed amount annually, up to 4% for registered annuities. And this option is expensive.

    http://cawidgets.morningstar.ca/ArticleTemplate/ArticleGL.aspx?culture=en-CA&id=690354

    • boomer on March 30, 2016 at 6:00 pm

      Thanks Gail. Your input is appreciated.

  5. mary on April 14, 2016 at 9:56 am

    we are now renovating our bathroom in order to stay in our own home

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