Money tips to stretch your retirement nest egg – the Canadian version

Published On October 28, 2013 | By Joseph (Ken) | Retirement

reckless youthAlthough a US based article, an interesting read is Money tips to stretch your retirement nest egg

“Two of the biggest mistakes that people make when they reach retirement are underestimating how long they will live and the cost of future medical expenses. A woman who reaches age 65 can expect, on average, to live to be 84 while a man can expect to reach 81. Life does not end at retirement and neither should your planning.”

The tips in the article:

1) Determine Your Needs

“The first thing you should do is sit down with a financial planner to determine whether your current savings and lifestyle are sufficient for your future needs. Many people choose to retire too early because they overestimate their financial longevity.”

Although the article refers to Social Security, the same can be said for CPP and OAS. I looked at the issue with a Q&A and I have always been a proponent of early collection.

Questions and Answers – Deferral or early collection of CPP benefits

“It is very important that you take your health and life expectancy into consideration when deciding whether to take CPP early or to defer taking CPP and/or OAS past the age of 65. When receiving early payment, there is a “penalty” which is a % of the amount you would have received at 65 and similarly, when deferring payment, there is a %  ”increase” to the amount you would have received at 65. Why age and health is an important consideration is that, based on the age (the point) where you “break-even” (where early payment costs you and deferral benefits you), you have to make a decision as to how long you expect to live and therefore which you feel is the best option.”

2) Understand Your Retirement Accounts

“It is imperative that you understand the tax implications when distributing your retirement savings. Remember that withdrawals from your 401(k) or traditional IRA are subject to income tax, while withdrawals from a Roth IRA are not. “

The Canadian version of that statement is:“Remember that withdrawals from your RRSP and RRIF are subject to income tax, while withdrawals from a TFSA are not.” This is an important distinction relative to the GIS (Guaranteed Income Supplement).

Low-income seniors should be wary of the GIS phaseout

“The problem with a RRSP is that a withdrawal from your RRSP is considered income (not so with a TFSA).  As the Guaranteed Income Supplement (GIS) is based on how much income you earn, the more RRSP’s you withdraw, the less money you receive from the GIS.”

3) Balance Your Portfolio

“This may be a safer strategy, but it can leave you short towards the end of your life when medical bills are increasing. Fidelity estimates that a 65-year-old couple will incur $220,000 in medical expenses during retirement.”

Fortunately, the health care in Canada is delivered through a publicly funded system, which is mostly free at the point of use.

4) Other Ways to Save

There is a lot of good advice as to making important changes to your lifestyle:

  • “invest in your health with regular exercise”
  • “clipping coupons now that you have time to take advantage of discounts”
  • “trading in your vehicle for a more fuel-efficient option

In addition to those, I would suggest you consider:

  • relocating to a less expensive area
  • down sizing to a smaller less expensive home
  • consider a part-time job
  • get out of or minimize debt

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About The Author

Joseph (Ken)
(Ken) is a Registered Public Accountant with over 25 years of public practice experience in the accounting profession. Ken specializes in accounting information systems, taxation and financial reporting.

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