Tuesday, February 28, 2017

Hidden costs in Retirement part 2

Tax tips for fewer retirement surprises:
Create your retirement plan - Getting a sense of your retirement goals and what they will cost you is the first step to building a tax-efficient retirement plan.  Your retirement plan is personal to your goals and income needs, so speak to an advisor to help you build the plan that's right for you.   

Maximize tax-advantaged savings as you near retirement – Now is the time to accelerate your savings by maximizing your RRSP and TFSA contributions. Not only will your savings grow without tax within these plans, when you withdraw funds in retirement you'll likely do so at a lower income so you'll pay fewer taxes (with an RRSP) or no tax at all (with a TFSA).

Withdraw RRSP funds strategically – and re-invest in a TFSA – Although funds can remain in your RRSP until age 71, consider how early withdrawals may help to reduce your overall tax bill in retirement. Use the  Retirement Calculators to understand how all of your income sources (benefits, pensions, savings) work together, and identify where you may be able to top up income at lower marginal rates. For added savings, consider re-contributing after-tax RRSP withdrawals to your TFSA, to continue tax-sheltered growth.

Retiring early? Time your withdrawals to maximize your benefits: If you're retiring early or entering semi-retirement, speak to an advisor about the benefits of using your savings or delaying your CPP/QPP benefits to fit your income needs for retirement.

Key poll findings:
Retired Canadians who faced surprises upon retirement say they were most surprised by higher spending and unexpected costs (30 per cent) including repairs and renovations, financial support for children/grandchildren/parents and costs of long-term care; health issues (24 per cent); and, a higher tax bill (15 per cent).

Compounding the issue, nearly half of retired Canadians (48 per cent) stopped working earlier than expected. Reasons they retired earlier include:

33 per cent due to an unexpected health issue
22 per cent were asked to retire by their employer

In hindsight, retired Canadians with retirement regrets say they wish they'd started planning sooner (38 per cent), saved more outside of their RRSP (38 per cent), and would've retired later (22 per cent).

Canadians aged 50+ who faced surprises upon retirement:
I experienced unexpected health issues
I had to pay more taxes than I had anticipated
I had to carry debt or mortgage into retirement
*Unexpected home repairs or renovations forced me to use some of my savings
*I spent more money than I thought I would
I wasn't financially prepared for a change in my life circumstances
*Travelling cost me more than I had anticipated
*I didn't anticipate providing financial support for my children/grandchildren
*I didn't realize the costs of long-term care for myself or my spouse
*I wasn't prepared for the costs or loss of income due to caring for my aging parents
 * Total of 30% for "Unexpected Expenses"

Top three things Canadian retirees aged 50+ who would go back and change anything pre-retirement:
I would've saved more outside RRSPs (e.g. TFSA, savings)
I would've started my retirement planning sooner
I would've retired later

Time of retirement for Canadians 50+:
1-2 years earlier
3-5 years earlier
1-2 years later
3-5 years later

Canadian retirees top reasons for retiring earlier than planned, by percentage:
I retired earlier due to an unexpected health issue
I was asked/incented to take early retirement by my employer
I had enough savings to retire earlier than planned
CIBC Retirement Surprises Poll Disclaimer:
From February 6 to 9, 2017 an online survey was conducted among 662 retired Canadians over the age of 50 who are Angus Reid Forum panellists. The sample outgo was balanced on age, gender and region to Census Canada. For comparison purposes, a probability sample of this size has a margin of error of +/- 3.8%, 19 times out of 20.

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