How to Balance Enjoyment and Savings in Retirement
Retirement is a time to enjoy the rewards of your hard work, but it’s equally important to make sure your savings last throughout your retirement years. With the rising cost of living and healthcare in Canada, finding the right balance between enjoying life today and preparing for the future can be a challenge. Here are some strategies that can help Canadian seniors manage both effectively:
1. Create and Update Your Budget Regularly
Start by creating a detailed budget that factors in your income sources such as Old Age Security (OAS), Canada Pension Plan (CPP), or Quebec Pension Plan (QPP), and any Registered Retirement Savings Plan (RRSP) withdrawals. Don’t forget to account for annual adjustments such as inflation-based increases to OAS and CPP. Regularly update your budget as your needs change. For example, the 2024 maximum monthly OAS payment for seniors 75+ is expected to rise to $800.44.
2. Maximize Government Benefits
Be sure to optimize all government benefits. For instance, seniors with lower incomes may qualify for the Guaranteed Income Supplement (GIS), which provides additional financial support. If your income is above a certain threshold, consider delaying OAS to avoid the “OAS clawback.” This can save thousands of dollars by reducing the amount of OAS lost due to higher income.
3. Prioritize Meaningful Spending
Identify what brings you the most joy in retirement. Whether it’s traveling, pursuing a hobby, or spending time with family, focus your budget on these areas. For example, if travel is a passion, consider taking advantage of senior discount programs on airfare or train travel within Canada, or use senior-specific travel insurance for longer trips.
4. Plan for Healthcare Costs
While Canada’s healthcare system covers many services, not all medical expenses are included. It’s important to budget for out-of-pocket costs like dental care, vision, and prescriptions, which may be eligible for the Medical Expense Tax Credit (METC). For 2024, medical expenses exceeding the lesser of 3% of your income or $2,479 can be claimed as a credit. Consider investing in private health insurance to cover any gaps.
5. Use Tax Credits and Deductions
Canadian seniors have access to several tax benefits, such as the Age Credit, Pension Income Credit, and the Disability Tax Credit (DTC). For instance, the Age Credit can help reduce taxes for seniors with a net income below certain thresholds. Couples can also use pension income splitting to reduce their tax liabilities.
6. Monitor Your Investments and Plan for RRSP/RRIF Withdrawals
Be mindful of when to convert your RRSP to a Registered Retirement Income Fund (RRIF), which must happen by the end of the year you turn 71. Your withdrawal strategy can significantly impact your tax burden, so consult a financial advisor to develop a tax-efficient plan. You may also explore other investment options like Guaranteed Investment Certificates (GICs) that offer steady returns with lower risks, especially in your later years.
7. Consider Flexible Financial Solutions
In addition to traditional income sources, consider other financial tools like life settlements. A life settlement allows you to sell your life insurance policy for a lump sum, providing immediate cash flow for unexpected expenses or even enjoyment during retirement. This can be particularly useful if your policy is no longer needed or affordable.
8. Stay Adaptable and Protect Your Finances
Life in retirement can bring unexpected changes, such as health challenges or shifts in your financial situation. It’s important to stay flexible and adjust your budget and spending as needed. Additionally, protect yourself from fraud, which is common among seniors. Regularly monitor your financial accounts and take advantage of services like CRA’s MyAccount email alerts to prevent fraud.
Looking for more financial flexibility in retirement?
Are you considering a life settlement for your life insurance policy? Wondering if you’re eligible to sell your life insurance policy? Learn more about selling your policy and find out if you qualify for a life settlement by contacting the experts at Canadian Life Settlements today.
