It would be an understatement to say that the economic bedlam caused by the Covid lockdowns has presented Canadians close to retirement with many questions and tough choices, including if your retirement date should be reassessed, whether to sell or keep your assets, the consequences of taking early retirement, and more.
But as always, a good financial planner will help you navigate these issues and provide a host of options. And it all starts by answering the same basic questions you would be asked in times of prosperity: How much can you afford to live on? How much money will be coming in? How much do you want to spend, and how much do you want to leave to loved ones?
The one thing not to do is make hasty decisions about existing portfolios or financial plans. Remember, economies always bounce back (frequently with a vengeance), as do particulars such as stocks, and stable income investments even during dismal times is possible.
The decision to work a few more years, even part-time, could make a big difference in your financial plan. Adjusting your spending money is equally impactful, and it could be as simple as cutting down on dining out or downsizing your home earlier than planned.
Yet another way to better secure your retirement is to contribute more to your plan via a Registered Retirement Savings Plan (RRSP), especially if you are in a 30% or higher marginal tax bracket, which will lower your taxable income, or in a Tax-Free Savings Account (TFSA), which you start with first if you’re in lower than a 30% marginal tax bracket, where the funds can grow without tax consequences.
Minimizing debt is crucial, especially high-interest credit card debt and mortgages or vehicle loans. Avoiding these debts or working to reduce them should be a priority for anyone contemplating retirement (converting these debts into low interest debts is possible if you have a home equity line of credit).
Also, talk to a financial planner about how to use different sources of income such as the Canada Pension Plan (CPP) and Old Age Security (OAS), pensions or Locked-In Retirement Accounts (LIRAs) from previous employers.
Finally, don’t skimp on the cost of professional advice: spending $200 on an accountant is well worth it if you can save $1,000 in taxes, and the same goes for financial planners. They know the opportunities during hard times, even if you think none exist.
