186852
182957

It's Your Money  

Planning now for an easier retirement later

Planning for retirement

During your working years, you generally have clarity on your monthly income because it is automated and predictable.

The process of planning for retirement income is different because it is not what you are used to - and that can cause feelings of uncertainty. That’s why working with a financial planning professional is a great way to build confidence that your plans for today will help you meet your goals for tomorrow.

Below, you’ll discover the key sources of potential income in retirement. Each of these types of income has pros and cons associated with them including the taxation that they incur when you draw from them and the tax-advantages they have for the investment growth they earn.

For most people in retirement, you should plan to draw an income from multiple sources. The two most common types of income you can expect come from either “guaranteed” or “asset-based” sources:

Guaranteed:

• CPP benefits

• OAS benefits

• Defined Benefit Pensions

• Annuities

Asset-Based:

• Non-Registered Investments

• RRSPs/RRIFs

• TFSAs

• Defined Contribution Pensions

The guaranteed income sources are easy to plan with since the amounts they pay out each month or year are guaranteed to keep coming no matter what the markets do. Asset-based sources however require much more planning.

In order to ensure a comfortable and predictable income in retirement, you will typically need to withdraw money from your retirement income sources strategically. If you simply draw all of the money out of one source first and then move onto the next one, you will most likely end up paying too much tax in some years which will more than offset any tax savings in the other ones.

Drawing too much tax in certain years of retirement can have additional negative consequences such as a claw-back of government run programs like OAS. Any claw-backs you experience in a given year are gone for good, you don’t get extra the money back the following year if you drop down in taxable income.

This just goes to illustrate how important a proper retirement income plan is to ensuring you get the most out of the money you saved with all of your hard work over your career – and how important a plan is to ensuring you maximize the amount of income you have each year in retirement.

And not matter how ideal the withdrawal plan you do create in retirement is, it won’t work forever. Changing account values, tax laws and any number of other variables means that your strategic withdrawal plans need to be regularly reviewed and adjusted.

You’ve worked hard to earn it, so make sure you plan now to pay yourself top dollar later.



187105


Five retirement goals to discuss with your financial planner

Discuss retirement goals

Retirement is no longer a date on the calendar that marks the end of your career.

If you are one of 2.5 million Canadians now in their 60s, you may be considering part-time work, an encore career or some time off to travel or volunteer.

If retirement is on the horizon, now may be the time to review your plan so you can explore all of life’s possibilities.

Over the course of your life, planning has been your ally. You received advice and built a financial plan that evolved to meet your ever-changing needs.

Now, your plan will continue to adapt and grow with you, as you set new goals in retirement like managing your income, planning for expenses and maintaining a healthy lifestyle.

Here are five important retirement goals to discuss with your financial planning professional:

1. Longevity – Embrace the unknown

Fear that you may outlive your investments is a common anxiety that can be remedied through planning. About 58 per cent of Canadians worry about making their retirement funds last. You’ve never retired before so don’t expect that you can anticipate what life will be like. You may want to stay in the workforce, consider an ‘encore career’ in your current field, or try something entirely new.

Whatever you decide, having a comprehensive financial plan can reduce the anxiety of the unknown and give you visibility of your complete financial picture so you can be assured your income in retirement compliments your lifestyle and the goals you’ve set for your family.

2. Inflation – Plan ahead to meet your goals

A retirement plan needs to provide you with a predictable income that accounts for rising costs due to inflation. A two per cent inflation rate could reduce your buying power by up to 40 per cent in just 20 years. Knowing this, you and your advisor can plan ahead and find the best way to combat rising costs and still pay for all of your short- and long-term goals such as building your dream home, traveling, lending support to family members, and maintaining your involvement in the community.

3. Asset allocation - Ensure income for life

The financial plan you create determines the ideal combination of asset types in your investment portfolio based on your age, your goals, and your tolerance for risk. Your asset allocation will typically include equity and fixed-income investments along with some portion in cash. Because investment results are dynamic, it’s necessary to rebalance your holdings regularly to keep the allocation in line with your goals.

Clients who work with professional advisors often choose portfolio solutions that automatically adjust such factors as asset classes, geographies, sectors, and investment styles to mitigate risk.

4. Withdrawal rate and minimizing risk and taxes

The amount of income tax you pay in retirement depends on your withdrawal rate, meaning how much you take out, and also the type of income you earn. For example, dividend income and capital gains are not taxed the same way as income from your registered investment accounts. A proper financial plan determines which investments you should live on first and how to combine income sources in the most tax-effective and lasting way.

5. Health - Planning to stay healthy

Regular exercise and a healthy diet are things you can plan for. If there are costs associated with gym memberships, club dues, training, and equipment, you can build them into your plan. Other things are not so easy to anticipate, such as illness, renovations that let you stay in your home, or the need for long-term care. Your plan should look at a range of options that can put your mind at ease about life’s unknowns while you focus on its possibilities.

Take the first step today. Whatever vision you have for retirement, now is the time to ensure that you’ve considered all of your options.

Create a plan based on your new goals while always knowing it will continue to adapt and change with you in this exciting and rewarding next chapter of your life.



Ways to negotiate a better mortgage with your bank

Getting a better mortgage

Did you know you might be able to negotiate a better mortgage rate with your bank?

Most people mistakenly believe that when they receive their mortgage renewal offer, they must either accept it or switch lenders.

While switching lenders should always be an option worth considering, many mortgage lenders send out standard renewal offers that may not take into account your specific situation. Most mortgage renewal proposals are up for discussion, you just need to know the best way to go about it.

There is a wide selection of mortgage lenders out there, all vying for your business. If you have steady income and a decent credit rating, you may be able to find a different lender willing to offer you a better deal. And your current lender knows this.

One of the main reasons many people accept their lender’s first offer is for the convenience. In many instances, you don’t have to do anything — your mortgage will be automatically renewed, with the terms and mortgage interest rate that your bank has offered. This could be an extremely costly convenience, however.

Others think that it will cost too much to switch lenders. And there can be several fees that you may need to pay to switch lenders including appraisal costs, assignment fees, legal fees, etc.

While this can seem like a lot, many lenders will cover some of the costs if you switch your mortgage to them. And, typically, the savings you will make with a new mortgage dwarf these costs.

If your current lender offers you a very good rate, it might make sense to stay with them. However, mortgage interest rates offered in renewal letters can be as much as one whole percentage point above what you might find elsewhere (and posted bank rates are always high).

If your income has decreased considerably, you may not qualify for the same mortgage with a new lender. So, while this may prevent you from signing up with a different lender, it shouldn’t stop you from negotiating.

The difference between the bank rate you’re offered and what you could actually get can be as much as one per cent. Even a difference of 0.3 per cent (which is often the very least you can get on improving your bank’s offer) can save you thousands.

But how do you go about negotiating? Try these simple steps:

Step 1 - When you receive your mortgage renewal letter from your bank, the first step is: do not ignore it. If you don’t contact your lender to confirm the term and rate you wish to proceed with, you may be automatically renewed into an open mortgage term, which carry significantly higher rates than standard closed-term mortgages.

Step 2 - Study the offer thoroughly. Make sure you fully understand:

• The mortgage rate being offered

• The period of time the term covers (for example, five years)

• Prepayment privileges (for example, 15% prepayment per year)

• The amortization period (the length of time it will take for you to pay off the mortgage)

Step 3 - To prepare yourself to negotiate mortgage rates, carry out your research with an internet search for “best mortgage rates + your city/province”. Look at several sites to find the best offers available.

Step 4 - Make sure you’re comparing apples to apples and look for mortgages that fit the one described in your renewal letter. For example, if your bank is offering you a five-year fixed rate on your uninsured mortgage, make sure that this is the kind of mortgage that you are comparing it to.

Also, be aware that mortgages can have different conditions. Some low-cost lenders won’t allow much in the way of prepayment privileges, for example. Some can also have very high lending criteria (for example, credit scores above 740 and loans to salaried borrowers only, so no self-employed applicants).

And if you’re considering mortgage refinancing (where you borrow more than your original mortgage amount — typically to set up a line of credit, consolidate debt or pay for home improvements) this will make a difference. Mortgage refinancing rates are usually a little higher than rates for a straightforward renewal.

Step 5 - Consider talking to a Mortgage Planning Specialist. They can offer expertise for not only securing the lowest rate possible, but also the important role a mortgage plays in your overall financial plan.

Step 6 - Start to negotiate mortgage rates with your lender. Once you’ve found a mortgage with a rate and conditions you like, talk to your financial institution and ask if they will match it.

If your current lender gives you a better offer, great! And if not, consider switching to a new one. Before you do though, clarify the costs involved in switching lenders. Then ask the new lender to cover those costs.





Start new year with achievable financial resolutions

Start the new year right

Happy New Year. I wish everyone a happy, healthy and prosperous 2022!. I hope that this year brings us back to a little more normalcy and back to our pre-pandemic way of life.

And while you may not be able to personally do anything to bring this pandemic to a conclusion, you can take steps at the start of a new year to take a look at your financial situation and what changes you can make to improve it.

For this week’s column, I wanted to suggest some simple and easy to achieve financial resolutions that you can actually do to start the new year off right:

1. Review your subscriptions—Pull up your bank and credit card statements and make a list of any monthly subscriptions that you pay for. These include things like Netflix accounts, gym memberships, music streaming and likely many more. Now figure out which ones you haven’t used in awhile and cancel them. Don’t hold on to subscriptions “just in case” you use them again. You can always re-subscribe if you really want to.

2. Use anything set to expire—Create a list of any credits or points that might be expiring in 2022 and make a plan to use them. Many travel related credits were rolled over for another year due to the pandemic but some of these may expire soon. If you don’t plan to use them for travel, see if the points can be redeemed for something else instead.

3. Review last year’s spending—While this may seem like a daunting task to start, it really won’t be too hard once you dive in. Create a rough budget of where you spent on what in 2021 and see if there are any areas that can be trimmed in the coming year. Sometimes visually seeing where you spend your money is quite the surprise and once you are aware of areas of high spending, it is easier to make adjustments.

4. Take charge of your debt—Update (or create) your list of all debts that you owe and what terms and interest rates they carry. Pay only the required minimum on every debt except for the one with the highest interest rate and focus all extra debt repayments to that one only. Once it’s paid off in full, move extra payments on to the debt with the second highest interest rate.

5. Update your financial plan—If you have a comprehensive financial plan already, the beginning of a new year is a great time to update it. And if you don’t yet have a plan, now’s the time to create one. A proper financial plan outlines where you are today, where you’d like to be in the future and details exactly how you will reach those goals. If your “plan” is little more than an investment statement, it’s time for an upgrade…

While the above steps can be done at any time of the year, the start of a new year is a great time to schedule a check-in and get your finances on the right track.



More It's Your Money articles

About the Author

Brett, designated as a chartered investment manager and certified financial planner, is the regional director (Okanagan) for IG Wealth Management.

In addition to his “day job," Brett was appointed to the board of directors of FP Canada (formerly FPSC) in 2014, named as the board’s vice-chair in 2017 and took over as board chairman in 2019. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FP Canada board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected]



186724
The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

Previous Stories