Give yourself a financial planning Christmas present this year

Financial peace of mind

As the holiday season approaches, it’s natural to focus on giving to others.

This December, why not give yourself a gift that will keep on giving? I’m going to let you choose what gift you give yourself and even suggest you pick more than one. By giving yourself one or more of these gifts this month, you can set yourself up for a more prosperous and stress-free 2025.

Here are five financial presents you can give yourself this holiday season to ensure a brighter financial future:

1. A budget that works for you—The best gift you can give yourself is a clear picture of your finances. Sit down and create a budget that reflects your income, expenses, and savings goals. If you already have a budget, take time to review and update it. The holidays can bring extra spending, so plan for gifts, travel, and festivities without compromising your financial stability.

How to make It happen:

• Use budgeting tools or apps to track your spending in real-time. There are many free ones available.

• Prioritize needs over wants and be mindful of holiday overspending.

• Set aside a “fun fund” for guilt-free spending during the holidays.

2. A debt-reduction plan—Carrying high-interest debt into the new year can be a significant financial burden. This December, give yourself the gift of a debt-reduction plan. Focus on paying down credit card balances, personal loans, or other high-interest debt.

How to make It happen:

• List all your debts, including interest rates and minimum payments.

• Tackle the high-interest debts first by making minimum payments only on all debts except the one with the highest rate and put everything extra on that one first until it’s gone.

• Look into consolidating high-interest debts into a lower-interest loan or line of credit to save on interest costs.

3. An emergency fund—An emergency fund is your financial safety net. If you don’t have one yet, now is the time to start. Having three to six months of living expenses saved can provide peace of mind and protect you from unexpected financial shocks.

How to make It happen:

• Start small by saving a percentage of your December income.

• Automate your savings to make it a consistent habit.

• Consider reallocating holiday bonuses or year-end tax refunds to your emergency fund.

4. Invest in your future—The holiday season is also a great time to focus on your long-term financial health. Contributing to a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) can help you grow your wealth and reduce your tax burden.

How to make It happen:

• Maximize your RRSP contributions to take advantage of tax deductions.

• Use your TFSA for investments that will grow tax-free over time.

• If you have children, contribute to a Registered Education Savings Plan (RESP) to benefit from government grants.

5. Financial literacy and advice—Understanding your finances is one of the most empowering gifts you can give yourself. This December, invest in your financial education or seek advice from a professional financial planner.

How to make It happen:

• Read books, attend webinars, or take online courses on personal finance.

• Schedule a meeting with a Certified Financial Planner professional to review your goals and develop a personalized plan.

• Join online communities or forums focused on financial literacy for support and ideas but be wary of the source and of bad advice.

The holidays are a season of giving, and that includes giving to yourself. By focusing on these financial gifts, you can set the stage for a prosperous 2025.

This holiday season, unwrap the gift of financial security and peace of mind. It’s the kind of present that never goes out of style.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

Carrying a mortgage into retirement

Retiring with a mortgage

For many Canadians, the idea of retirement represents freedom from the constraints of a working life.

However, achieving that ideal is often complicated by financial challenges, including the growing trend of carrying a mortgage into retirement.

While it may be unavoidable for some, managing this financial burden wisely is critical to maintaining financial security and peace of mind in later years.

Why are more Canadians retiring with a mortgage?

A combination of factors has contributed to the rising number of retirees who still have mortgages. Real estate prices have soared in many parts of Canada, leading people to take on larger mortgages that take longer to pay off.

At the same time, some Canadians are tapping into their home equity to fund other needs, such as helping adult children buy homes, financing lifestyle upgrades, or consolidating other debts. Additionally, delayed retirement means that mortgages once planned to be paid off by age 65 are lingering into people’s 70s and beyond.

The risks of carrying a mortgage into retirement

While the risks may seem obvious to many of you, it is important to fully understand all the risks and potential impacts of carrying a mortgage into your retirement years:

1. Reduced cash flow: In retirement, income often comes from fixed sources like pensions, RRSP withdrawals, or government benefits. A monthly mortgage payment can significantly strain a retiree’s budget, reducing the funds available for other essentials like healthcare, travel, or unexpected expenses.

2. Market risk: If a retiree is relying on investment income to cover their mortgage, market downturns can create significant financial stress. A bad year in the markets might force someone to sell investments at a loss to cover mortgage payments.

3. Interest rate exposure: For those with variable-rate mortgages or lines of credit secured by their home, rising interest rates can increase monthly payments, further tightening their budget.

4. Mental stress: The psychological toll of carrying debt into retirement can be immense. Many retirees worry about outliving their money, and adding a mortgage to the mix can exacerbate these concerns.

Are there any positives?

While carrying a mortgage into retirement is not ideal, there are situations where it can make sense. For instance:

• Low interest rates: If your mortgage rate is exceptionally low, it may be more financially advantageous to carry the mortgage while keeping your investments growing at a higher rate.

• Leveraging equity: Accessing home equity for investments or other financial goals can be a strategic choice, provided the risks are well understood and managed.

• Real Estate Appreciation: If property values continue to rise, maintaining ownership of a mortgaged home may still contribute to overall wealth.

Managing a mortgage in retirement

If you find yourself carrying a mortgage into retirement, careful management is essential. Here are some strategies:

1. Refinance for lower payments: Consider refinancing to extend the amortization period and reduce monthly payments. While this may increase overall interest paid, it can ease cash flow challenges.

2. Downsize or relocate: Selling your home and moving to a smaller, more affordable property can help eliminate the mortgage entirely or significantly reduce the amount owed.

3. Use a reverse mortgage: While not suitable for everyone, a reverse mortgage allows retirees to access home equity without monthly payments. However, the loan balance grows over time, reducing the inheritance left to heirs.

4. Budget wisely: Build a retirement budget that prioritizes paying off your mortgage while maintaining a comfortable lifestyle. Consider cutting discretionary expenses where possible.

Tips to avoid retiring with a mortgage

If you still have some years left before you retire, now is the time to plan (or adjust your plans) to make sure you avoid this situation all together:

1. Start early: Aim to pay off your mortgage as early as possible. Consider making extra payments or increasing your monthly payment amount while you’re still working.

2. Plan for the long term: When purchasing a home, choose one that is affordable and fits your long-term needs. Avoid stretching your budget to buy a more expensive property.

3. Avoid equity withdrawals: Resist the temptation to tap into home equity unless absolutely necessary. This ensures your mortgage balance decreases steadily over time.

4. Boost retirement savings: The more savings you have, the easier it will be to manage any remaining debt. Maximize contributions to RRSPs and TFSAs during your working years.

5. Seek professional advice: Work with a professional financial planner to create a tailored strategy for debt repayment and retirement savings. They can help you assess whether retiring with a mortgage is manageable or whether adjustments are needed.

Retiring with a mortgage is not ideal, but it is a reality for many Canadians in our current economic environment. The key is to approach this challenge with a clear plan, no matter how tough your situation may feel, there are always options to consider to improve it.

By understanding the risks, managing the debt carefully, and taking proactive steps to avoid carrying a mortgage into retirement, you can secure a more comfortable and worry-free retirement.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

It's not too late to save on your taxes

Advance tax planning

Saving for retirement is just the first step - planning how to withdraw the money is important too

Planning for retirement

For most Canadians, the journey toward retirement is centred on building wealth, saving diligently and making smart investments.

This is known as the “accumulation” phase—a well-covered topic in the world of personal finance.

But once retirees reach their golden years, a new challenge emerges: how to best withdraw those funds in a sustainable and tax-efficient way. This phase, known as "decumulation," is just as crucial to a retiree’s financial well-being as the accumulation phase. A well-thought-out decumulation strategy can make the difference between financial security and uncertainty in retirement.

Why decumulation deserves equal focus

Many retirees spend decades in the accumulation phase, building assets through RRSPs, TFSAs, pension plans and other investment accounts. Unfortunately, much less attention is often given to the decumulation phase, even though it requires just as much strategy and planning.

Without a proper decumulation plan, retirees risk depleting their savings too quickly, paying more in taxes than necessary and leaving less behind to their loved ones. To maximize the funds available in retirement, Canadian retirees need a thoughtful, carefully managed withdrawal plan that considers taxes, investment growth, longevity, and lifestyle needs.

Building an ideal decumulation plan—Key steps

Crafting an effective decumulation strategy is a multi-step process that should be customized to each retiree’s unique circumstances.

Here are the key steps and decisions to consider:

1. Determine retirement income needs—The first step is to assess your income needs in retirement, which often differ from the working years. This includes estimating expenses for essentials like housing, food, and healthcare, along with discretionary spending for travel, hobbies, or family gifts. A thorough budget helps you understand how much income you’ll need each month, setting the foundation for your decumulation plan.

2. Calculate sustainable withdrawal rates—A common approach to determine how much to withdraw each year is to use a sustainable withdrawal rate. The “4% rule” is a popular guideline, suggesting retirees withdraw four per cent of their initial retirement savings each year, adjusting for inflation.

However, this rule isn’t one-size-fits-all, especially in a low-interest-rate environment or when investment returns are uncertain. Some retirees may need to withdraw less, while others with significant savings and shorter life expectancies could withdraw more. Speaking with a professional financial planner can help determine a sustainable rate tailored to your portfolio and goals.

3. Consider tax-efficient withdrawal strategies—Tax implications play a major role in decumulation. Withdrawing from different accounts in a strategic order can help minimize taxes and extend the life of a portfolio. Generally, but not always, it’s tax-efficient to withdraw from non-registered accounts first, then RRSPs or RRIFs, and finally TFSAs. By delaying RRSP withdrawals, you allow these funds to continue growing tax-deferred. Similarly, keeping withdrawals from TFSAs until last can help protect tax-free income. Again, everyone’s situation is different and a plan should be customized for you.

When possible, retirees can also consider “income-splitting” strategies, such as pension income-splitting or spousal RRSP withdrawals, to reduce the tax burden. Structured withdrawals not only impact how long retirement funds last but can also reduce taxes on government benefits like Old Age Security (OAS).

4. Manage longevity and market risk—Outliving retirement savings is a major concern for retirees and balancing growth with security is a critical part of any decumulation plan. One approach is to keep a mix of assets that allows for growth potential, such as stocks, alongside lower-risk investments like bonds or guaranteed income products.

By keeping some portion of the portfolio in growth-oriented assets, retirees have a buffer against inflation and the rising costs of living over time. Many retirees also choose to set aside a “cash cushion” or maintain a short-term bond ladder to cover immediate expenses, allowing their investment portfolio time to recover if markets decline.

5. Evaluate guaranteed income options—Certain types of guaranteed income products, such as annuities, provide predictable income that isn’t subject to market volatility. While annuities often require an upfront investment, they can ensure a steady stream of income for life, which can reduce stress about market risk and longevity. Annuities aren’t right for everyone, so it’s wise to consult with a professional planner to determine if they’re a good fit for your situation.

6. Review and adjust regularly—Decumulation isn’t a set-it-and-forget-it plan. Retirement circumstances, lifestyle changes, market conditions, and tax laws evolve over time. A regular review—ideally once a year—helps ensure your plan stays aligned with your goals and income needs. An annual checkup can also identify any adjustments needed in withdrawal rates, tax strategies, or spending habits.

Decumulation: The key to a comfortable, sustainable retirement

The decumulation phase can seem daunting, especially after years of focusing solely on saving and investing. But with careful planning, Canadian retirees can create a sustainable withdrawal strategy that maximizes income, minimizes taxes, and preserves assets.

A proactive approach to decumulation will provide retirees with confidence and peace of mind, knowing their financial future is secure.

By giving as much focus to decumulation as to accumulation, retirees can enjoy their retirement years with financial freedom and flexibility.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.