Planning for a worry-free retirement

Retirement planning
Retirement is full of surprises, but they're easier to deal with when you have a plan. Ryan Remiorz/The Canadian Press

Retirement can be full of surprises.

Like medical bills, for instance. When Lyn Hessels’ husband Steve needed a hearing aid, they had to pay nearly full-price for it because they were no longer covered by their previous employer’s health plan. They spend $75 a month on Blue Cross, though even that didn’t pay for everything.

And when their truck broke down, they needed to come up with $4,000 for a repair. “That is certainly an issue when your income is only $2,000 a month per person,” says Lyn Hessels.

“We put money into RRSPs for 20 years, and now I’m thinking maybe the RRSP wasn’t a good idea because if we do want to take RRSPs out with our pensions, it’s going to put us into the next percentile in the tax bracket so everything we saved by taking out RRSPs is basically, they gave it to us in one hand and then take it out in the other.”

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She and her husband are far from destitute, she says, but they’ve had to make some adjustments in the year since they’ve retired.

“We’ve certainly had to change. We don’t go out like we used to. We can’t afford to go out anymore. We still go out for a meal, but not like we used to,” she says. She makes more meals from scratch at home now. She had also planned to take some classes to keep busy, but is finding that they’re a bit too expensive.

“We can certainly live comfortably but we just don’t have as much money left over at the end of the pensions that we thought we would,” says Hessels.

READ MORE: Half of Canadians don’t think they’ll be able to retire comfortably

However, they enjoy their trailer and occasionally make the trip from Calgary to their cabin near the Saskatchewan border. Lyn has also considered getting a part-time job, though she finds that there aren’t many things available for seniors. “I’m relegated to greeter or working at McDonald’s where I’m on my feet all day or something and that’s not what I would do,” she says.

She stresses that she and her husband are doing well compared to many, but she wishes they had planned their finances better. “We’re definitely not having financial difficulties where it’s causing us all kinds of heartache but we’re getting a lot of surprises.”

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Preparing for retirement when there’s little to save

Jane Mason and her husband Dan will probably be retiring soon. Jane is 62 and Dan is 61. Both are currently on disability.

“It’s like oh my god, what are we going to do?” says Jane. “The only way we’re safe is because I paid off the house long ago. But still, it’s just terrifying when I look out and I see what’s happening.”

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They’re having trouble keeping up already, she says, as the cost of groceries, transit fares, heat and electricity keep climbing while her disability payments do not. She worries about what will happen at 65.

They have some savings, but have been forced to dip into them recently because of the increased cost of living, she says. Now, their cash barely lasts to the end of the month.

READ MORE: More Canadians cashing out RRSPs early

Mason worries about having to sell their house when they retire. “We worked hard all our lives and feel sad that we have to worry about our future like this, or be forced out of our house,” she says. She says that they have no debts and she is good with money, but she doesn’t want to leave her home and her neighbourhood in Langley, B.C.

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And the government’s tax breaks are no help, she says. “Every time they announce a big deal for a tax break, I roll my eyes.”

“It doesn’t matter. We don’t pay tax because we’re so low income. What the heck does a tax credit do for us? Absolutely nothing.”

Planning your way to retirement

The key to an anxiety-free retirement is a good plan, thinks financial educator Jim Yih, who blogs at And he says there are four basic elements to any retirement plan:

  1. How much you save
  2. The rate of return
  3. Your retirement date
  4. Your retirement price tag

The first two: savings and the rate of return, work best if you start early, he says. “Compounding only works if you have time. If you’re two years to retirement, so you’re 63 and you’re wanting to retire at 65, and you’re going to run a shortfall – well, it’s really difficult to save the necessary amount to fill in the gaps.”

People who didn’t start saving early might want to look more closely at the last two elements: their retirement date and the overall cost of their retirement.

READ MORE: RRSP basics to get you started and if they’re right for you

“If you’re 63 and you want to retire at 65, maybe the easiest solution is part-time work after 65, or to delay retirement for one year or two years. And that’s becoming a more popular option,” he says.

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Figuring out how much your retirement is going to cost is more complicated. He suggests not worrying too much about things like rising food prices as you craft your plan. “We can’t control what health care is going to do, we can’t control what food prices, what inflation are going to do. What we can control is what I think people need to focus on.”

He recommends that people take a close look at how much they spend each month, and assume that they will spend roughly the same amount in retirement (minus things like mortgage payments if their house will be paid off, or the cost of children’s education since they’ll be out of school and such). “Most people underestimate how much they spend,” he says. As a shortcut, he asks people to subtract how much they save from how much they take home each month. You should also research and factor in extra costs like medical insurance if you are no longer covered by work.

Once you’ve arrived at a price tag for your retirement, he recommends that you test it out by trying to live at that amount of expenditure for a few months. That way you will know if you’ve budgeted enough to be comfortable.

In fact, Yih advocates testing every assumption you make in your retirement planning, like testing out different rates of return on your investments, for example, or inflation rates. If you’re uncomfortable with the worst-case scenarios, maybe you need to save a little more.

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WATCH ABOVE: The rush is on to dump money into RRSPs before the deadline, but with people working longer and retiring later how much should you put away? Tony Tighe reports.

Of course, saving anything at all is difficult if you’re on a low income. “It is nearly impossible to survive on that money, never mind save any of it,” says Billie Sinclair, money skills facilitator with Family Services of Greater Vancouver.

READ MORE: 5 steps to a financial plan

Every little bit helps though, she says. Even though a low-income person could be taking home CPP, OAS and Guaranteed Income Supplement, those government payments might only add up to a couple thousand dollars at the absolute maximum.

“Although they might not be able to save a lot, anything that they save will supplement their Canada Pension and stuff, because it’s not clawed back based on income. Even if you can only save enough that you can supplement your income by a few hundred dollars each month and you’ve got the discipline to only take out that little bit, then you can have a chance.”

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“Where is the money coming in. Are there places where they could earn more money? Are there places where they could spend less?”

She stresses that it’s much easier to start early. “I love working with people that are in their 50s and they have 15 years ahead of them to make some changes and to implement some better strategies.”

“Once you’re 60, your options become much more limited because you’re not considered as employable, so changing jobs and everything is not so simple.”

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