Retirement Planning in Your 50s: 6 Things to Consider
The youngest Canadian baby boomers turn 55 this year. Back in the 1980s, the economic recession resulted in few viable career opportunities for this age group and they were more likely to have faced underemployment or unemployment after graduation.
A delay in working at a significant career means several years of catch-up in employment income. Now you realize that retirement is in sight and no longer a distant dream. Are you prepared? As you get older, time seems to move faster as well.
This age is a milestone for many reasons. You’re likely in your peak earning years and the big debts – mortgage, parenthood, saving for university – are making less of a dent in your living expenses. Unless you had your children late in life, they should be well on their way to adulthood.
1. Focus on your retirement nest egg
The five to ten years before you leave the workplace is a critical period. It’s time to start figuring out your resources in earnest while you still have time to make adjustments.
With many of the larger expenses hopefully behind you or winding down, it’s time to do some serious number crunching and figure out what it’s going to take to live comfortably.
Get a ballpark figure in today’s dollars of what you will need and what income you’ll expect. This figure gives you direction as you save, invest and create your retirement plan.
45% of pre-retired Ontario homeowners are relying on the increasing value of their homes to fund their retirement.
If you are a couple, make sure your retirement goals are compatible. 68% of people in this age group have yet to discuss their desired future, post-career lifestyle with their spouses (RBC).
Pay off your mortgage and other debts as soon as possible. Help your kids get a good education, then make sure they become financially independent.
Now is the time for a financial review. You may also want to consider how you’re going to turn your RRSP into retirement income. Check that you have the right mix of investments to ensure a secure and comfortable retirement.
2. Where will you live?
It’s not too soon to think seriously about where you’ll want to live in retirement and to make plans based on your decision.
If you want to stay living in the family home consider what changes might be needed to make it livable in your later senior years. If your home feels extravagant now that the kids have gone, you may want to create a rental unit to produce income (subject to local zoning laws).
If you will one day sell to move into something smaller, keep the house in good shape now by keeping it well maintained.
3. Watch out for the unexpected
Unfortunately, unexpected financial crises are far more common than anticipated.
According to the Ontario Securities Commission, a whopping two-thirds of people over 50 have experienced at least one major life-changing event that challenged their financial plans:
- Giving financial support to an adult family member who is having difficulties.
- Significant health care expenses/long-term disability.
- Forced early retirement, either the result of health issues or due to company downsizing.
- Losing money in the stock market and not making it back.
- Unexpected home repair bills.
These major life events can have a dramatic effect on a family’s financial plan. Loss of income brings the ability to save to a standstill. Additional unplanned spending leads to premature withdrawals of your savings.
4. Suddenly single
Becoming unexpectedly single can occur when a relationship ends in divorce. In Canada, the only age group that is seeing a rise in divorce rates are couples over 50. A divorce could result in each of the ex-spouses and their children having a lower standard of living than they previously enjoyed. 43% of Canadian women had a substantial decrease in household income.
As well, the financial impact of suddenly becoming single due to the death of a spouse can be substantial – income reduces but the expenses continue to come in. Depending on the deceased spouse’s responsibilities in the home, the loss will require significant adjustments. This underscores the need for personal life insurance and knowledge of the family investment and financial plan.
70% of BMO survey respondents said they would be unprepared financially to withstand a divorce or separation.
5. Consider long-term care insurance
The great unknown of retirement is future medical and health care costs. There is a very real possibility of needing long-term care. If you remain healthy – that’s great. But, any chronic condition can turn into an ongoing expense that can greatly restrict your lifestyle.
Buying long-term care insurance while you’re healthy is easier at age 55. If you wait until you are older you might discover that the annual premium cost is substantially higher, or you’ve developed a preexisting condition that disqualifies you from coverage.
6. Invest for the decades to come
It’s easy to see age 65 as the “finish line,” but the fact is you are likely to live at least an additional 20 plus years. At this age, you understand the importance of avoiding bad money choices as your retirement nears.
Moving towards more conservative investments makes sense as you get older, but don’t overdo it. If you are 55 today, that’s 30 or more years of market fluctuations, plus inflation.
As you review your savings goals be careful not to set the bar too low, but avoid the temptation to plunge into riskier investments, especially if you’ve had a late start.
Pay more attention to your investments and assess for tax efficiency and associated fees.
Half of Canadian couples between 55 and 64 have no employer pensions between them.
Ramp up your savings. Redirect money from your mortgage and kids to your savings. Try to save at least 25-40% of your gross income.
If you are contemplating early retirement you are going to need even more. If you have a company pension plan, quitting at 60 will probably reduce payouts by one third and leaving at 55 may lop off half. You are not only going to have a longer retired life, but inflation will also erode your payments for a longer period of time.
Any job changes now should be looked at closely in the light of company benefit plans.
A comfortable future takes planning
There are plenty of reasons why people put off planning for their retirement. The future has a way of arriving faster than we ever thought. No matter how well you are doing today, make sure you have the financial resources you will need for a secure future with careful planning.
You have a lot of financial options to explore. Make sure you make smart decisions.