Is your retirement wrecked? Knowledge is key to retirement plans
WHY LOOKING YOUNG IS BAD FOR YOUR NEST EGG.
Looking young for your age can be a bad thing, if it makes you postpone saving money for retirement.
"We are looking younger than in previous years, absolutely, but that does sometimes fool us into thinking we have many years for retirement planning," says Tina Di Vito, a financial planner, head of the BMO Retirement Institute and author of a new book, 52 Ways to Wreck your Retirement ... and How to Rescue It.
"Procrastination can creep up on us."
One-third of your life will be spent in retirement.
If you require specialized health care, do you want to spend your last years in a chronic care hospital or a five-star residence with in-house doctors and nurses?
The financial choices you make today will decide that for you.
Not saving enough is one of the main reasons people close to retirement decide to work a few extra years, says Di Vito.
Greg Pollock, certified financial planner and president and CEO of Advocis, The Financial Advisors Association of Canada, agrees. Clients in their 30s tell him they want to retire at 55, he says. Without a plan, they hit their 50s and realize they have to work until they're 67.
"We're all very optimistic," says Pollock.
But the truth is a health problem in your 80s can wipe out your life savings in one year.
If you do one thing, Pollock and Di Vito agree, do this: Start saving more, today, no matter how old you are. Make it automatic and it will become automatic. Other steps:
Make a plan. Pollock and Di Vito agree that the single most important step towards a successful retirement is planning for it.
Think about what you really want to do. Golf? Hit the beach? For 25 years? Really?
"Chances are, you will do a lot of the same things after retiring as you did before - we're somewhat hard-wired after a certain age and it's hard to change us," says Di Vito.
She suggests easing into retirement, if you can. Go down to four days a week first. Reduce your work days even more until you are fully retired.
Know your net worth. This is a summary of all your assets, minus your liabilities. Until you do this, you don't even know where you stand. You may feel rich because your home is worth $500,000, but if you stack your mortgage and consumer debts next to it, what are you really worth?
Pay attention to your everyday finances. Check your bank statements for errors and fraud, check your automatic bill payments to make sure you're not paying for services you no longer use, read your paycheque, even if it's electronic, to make sure pay increases are properly reflected.
Know your investments. The number of investment options has exploded in the past 20 years. You don't need to know everything. Learn the basics about GICs, bonds, equity investments, mutual funds and tax-free savings accounts. Learn how to keep tabs on your portfolio, even if you have a financial advisor.
Diversify. Really. Buying two different mutual funds is not necessarily diversifying if they are both investing in the same things. Which brings us back to know your investments.
Retirement is not a short period of time. Retiring doesn't mean you should stop investing. Di Vito recommends keeping a minimum of five years' worth of withdrawals invested in low-risk, easily accessible investments, but keep a long-term view for the balance of your retirement savings.
Pay off your mortgage. The faster you can pay off your house, the more time you have to save for retirement, says Di Vito. Increasing monthly mortgage payments a little bit every year is better than trying to save up and make extra lump-sum payments. It's too tempting to spend the money on marble kitchen countertops.
Monetize your hobby. Turning a hobby into a job could provide extra income in retirement. But if you decide to start a new business, do your research first. You won't have much time or opportunity to rebuild your finances if you fail.
Downsizing. Some people wait too long to downsize, says Di Vito. They continue to live in a large house they no longer need and cannot maintain. They can become fearful of moving.
Another mistake is not downsizing enough. If you sell your home for $525,000 and buy a smaller one for $450,000, you won't be much better off financially once all the taxes and fees are paid.
If you do one thing, Pollock and Di Vito agree, do this: Start saving more, today, no matter how old you are. Make it automatic and it will become automatic. Other steps:
Make a plan. Pollock and Di Vito agree that the single most important step towards a successful retirement is planning for it.
Think about what you really want to do. Golf? Hit the beach? For 25 years? Really?
"Chances are, you will do a lot of the same things after retiring as you did before - we're somewhat hard-wired after a certain age and it's hard to change us," says Di Vito.
She suggests easing into retirement, if you can. Go down to four days a week first. Reduce your work days even more until you are fully retired.
Know your net worth. This is a summary of all your assets, minus your liabilities. Until you do this, you don't even know where you stand. You may feel rich because your home is worth $500,000, but if you stack your mortgage and consumer debts next to it, what are you really worth?
Pay attention to your everyday finances. Check your bank statements for errors and fraud, check your automatic bill payments to make sure you're not paying for services you no longer use, read your paycheque, even if it's electronic, to make sure pay increases are properly reflected.
Know your investments. The number of investment options has exploded in the past 20 years. You don't need to know everything. Learn the basics about GICs, bonds, equity investments, mutual funds and tax-free savings accounts. Learn how to keep tabs on your portfolio, even if you have a financial advisor.
Diversify. Really. Buying two different mutual funds is not necessarily diversifying if they are both investing in the same things. Which brings us back to know your investments.
Retirement is not a short period of time. Retiring doesn't mean you should stop investing. Di Vito recommends keeping a minimum of five years' worth of withdrawals invested in low-risk, easily accessible investments, but keep a long-term view for the balance of your retirement savings.
Pay off your mortgage. The faster you can pay off your house, the more time you have to save for retirement, says Di Vito. Increasing monthly mortgage payments a little bit every year is better than trying to save up and make extra lump-sum payments. It's too tempting to spend the money on marble kitchen countertops.
Monetize your hobby. Turning a hobby into a job could provide extra income in retirement. But if you decide to start a new business, do your research first. You won't have much time or opportunity to rebuild your finances if you fail.
Downsizing. Some people wait too long to downsize, says Di Vito. They continue to live in a large house they no longer need and cannot maintain. They can become fearful of moving.
Another mistake is not downsizing enough. If you sell your home for $525,000 and buy a smaller one for $450,000, you won't be much better off financially once all the taxes and fees are paid.
Don't spend too much on your children. If you buy your child a house they will share with a spouse, you should consider registering a mortgage on that house. This will protect your loan from creditors and the division of the assets you invested if they divorce.
Source: Toronto Star, Business - Pg. B1, Oct 21, 2011
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