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).

KEY POLL FINDINGS:

Canadians aged 50+ who faced surprises upon retirement:

I experienced unexpected health issues	24%
I had to pay more taxes than I had anticipated	15%
I had to carry debt or mortgage into retirement	11%
*Unexpected home repairs or renovations forced me to use some of my savings	9%
*I spent more money than I thought I would	7%
I wasn't financially prepared for a change in my life circumstances	6%
*Travelling cost me more than I had anticipated	5%
*I didn't anticipate providing financial support for my children/grandchildren	5%
*I didn't realize the costs of long-term care for myself or my spouse	2%
*I wasn't prepared for the costs or loss of income due to caring for my aging parents	2%
Other	8%

 * 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)	38%
I would've started my retirement planning sooner	38%
I would've retired later	22%

Time of retirement for Canadians 50+:

1-2 years earlier	16%
3-5 years earlier	32%
On-time	39%
1-2 years later	6%
3-5 years later	7%

Canadian retirees top reasons for retiring earlier than planned, by percentage:

I retired earlier due to an unexpected health issue	33%
I was asked/incented to take early retirement by my employer	22%
I had enough savings to retire earlier than planned	17%

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.

Hidden costs in retirement

I have talked about the hidden costs of retirement with the biggest hidden cost being health related. Those who retire, at some point, will face unanticipated health care costs. Yet a new poll shows that we are not prepared for those costs. Retired Canadians aged 50 and over are finding that unanticipated costs, health issues and higher than expected tax bills are their biggest surprises in retirement. Complicating the situation for these retired Canadians is that many left the workforce before they expected to, putting pressure on their retirement income and leaving many wishing they had started planning sooner.

It's important to remember retirement planning is much more than checking your annual RRSP contribution off the list. The key to mitigating surprises or coping with the cost of health issues is planning ahead for the life you want to live.

Canadians are not stupid we are among the most educated people in the world, yet when it comes to retirement, many Canadians underestimate their spending in retirement. We appear to have a blind spot about this topic, or don't realize that we may have to retire earlier than we expect. If we are forced to retire early we may be unprepared to manage higher expenses than expected on a lower income than planned

Taxes can impact retirement cash flow Before 2009, when Tax Free-Savings Plans (TFSA) were introduced, Registered Retirement Savings Plans (RRSP) were among the few tax-efficient retirement savings vehicle. The poll indicates that some retirees bulked up on their RRSP savings, and are now facing a surprising tax bill as they convert their RRSP income into Registered Retirement Income Funds (RRIFs). As a result, some may also experience claw-backs on income-tested government benefits, which could have been avoided with earlier planning. 

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.

Laughing is contagious

f you have not seen this, take a look. It is a reminder that laughing is contagious. Try not to laugh or smile as you watch it, I am betting that you can not.

Gonzales (a division of Serviceplan Benelux) created a local market stunt in Antwerp metro for the Belgian "choose happiness" campaign of The Coca-Cola Company. With the insight "happiness starts with a smile", Gonzales turned moody subway faces into smiling one

Living through Kitchen renovations

Last fall we decided to renovate our 30-year-old kitchen to bring it up to modern standards. The idea is that in another 5 or 10 years, we will not be able to live in the house and will have to sell. When we examined which renovations will add the most value to a home we discovered that remoulding the kitchen was the best idea.

So, we found a good designer and told her what we wanted, and her company became our contractor for the project. It was a worthwhile investment. We wanted to finish the work on the kitchen before my daughter and her extended family from Australia came to visit, so our time frame was short.

I know many of you have lived through the chaos of a renovation but it was the first (and last) time for us. The first step was to remove everything from the cupboards and as we did this we realised that we had many items that we did not use, so they were given to Value Village and to family members who needed them. However, even after culling our cupboards we had boxes of food and utensils that filled the family room to the brim. For the first two weeks, as they dismantled the old cupboards it was not so bad. 

The plumbing was an interesting adventure; when our house was built in the late 80's they used Poly B for the plumbing. While we found out that with Poly pipe leaks are unforeseeable and there are no signs to warn of an upcoming leakage. Some things that influence polybutylene piping detrimentally consist of:

·        Poor instalment by the plumbers.

·        Water quality.

·        Age of the pipe and fittings.

·        Devices used during the instalment were calibrated for correct tolerances.

·        Chlorine and mineral levels.

·        Degeneration of pipe fittings.

When polybutylene pipe reacts with the oxidants in tap water, it becomes fragile, occasionally scaling or flaking. This results in the fracturing of the indoor surface area of the pipe, which permits, even more, degeneration. Ultimately the pipe will start to leak, causing water damage.

As luck, would have it, the day before the demolition of our kitchen was to begin, we found a leak in our plumbing system. So, after discussions with the contractor and the plumber we made the decision to replace all of the plumbing in the house, which added time to the renovations.

We had been operating with a sink, a stove and the fridge, while waiting for the cabinets, once the cabinets arrived, we lost the sink and the stove, but kept the fridge for a few days. Eventually, our new appliances arrived and we had a new sink, which was put in when the countertops arrived (two weeks after the installation of the cabinets.  

The new cabinets arrived at the end  of two weeks and then the clutter became almost unbearable. To make room for the cabinets we had to move the kitchen boxes from the family room to the living room. So the family room became the place for the new kitchen cabinets to sit while waiting to be installed.

I did find some online advice on how to survive a kitchen renovation from  Kitchen Workbook at Houzz.com, We did #2, #3 and #4, but we could have done more. If you are doing renovations, the advice in #8 is what you have to hold onto, to keep your sanity through the adventure:

1.Designate a kitchen stand-in. Eating out all the time gets tiresome, not to mention the strain it can put on your budget. And no matter how much takeout you bring home, you'll still need a spot to make school lunches, pour a bowl of cereal or brew coffee. Set up a temporary kitchen somewhere that's out of the way of construction. If you're lucky enough to have a morning kitchen or a guesthouse, you can turn that into food-prep central. Or outfit a corner of the basement, garage or workroom with a few portable tables, standalone shelves, storage crates and folding chairs.

2.Winnow down your kitchen gear. During a remodel, your cooking and eating routine will be disrupted, and no matter how much you love to cook, ambitious meals will be a challenge. 

3.Keep things simple and pare down to the kitchen tools you really, truly can't live without. Be merciless — how often are you going to use your food processor or waffle iron? Stash the essentials close at hand and store the rest.

4.Plan meals around small appliances. Portable workhorses such as slow cookers, microwaves, toaster ovens, electric griddles and skillets, hot plates and coffee makers can get you over the mealtime hump.

Move your fridge to your temporary kitchen, if possible; if not, invest in a minifridge and a chest freezer (check Craigslist or Free cycle), or borrow them from a friend.

Stock the pantry with disposables. Without your usual spot to wash dishes, you'll be getting creative (the bathtub, an outdoor hose, a cooler full of sudsy water). 

Make life easier by stocking up on recyclable or biodegradable plates, napkins, cups and utensils. You'll streamline cleanup and cut down on the stress of your temporary displacement.

5.If the weather cooperates, put your grill to work. Here's a secret: Your grill can do almost anything your oven can. Need to roast meat or vegetables, or bake pizza? Look at the grill. You can even channel your Scout days and use it for foil packet meals, pans of biscuits and rolls, skillet pies and cobblers and, of course, s'mores.

6.Keep a stash of non-perishable snacks. When you're starving, but can't face putting together a full meal in your makeshift digs, snacks can save your stomach

7.Leave town for a short time, if you can. If you're considering a vacation or need to schedule a business trip, now might be a good time, assuming you're comfortable with the remodelling work continuing in your absence. Bonus points if you're visiting relatives — you might score a home-cooked meal or two.

8.Remember the big picture. In the grand scheme of homeownership, this is but a short period of inconvenience amid years of kitchen bliss. Keep the process in perspective and treat it as an adventure. When you're hard at work in your sparkling new kitchen, the temporary hassles will fade from memory.