With medical advances and general good health extending lifetimes dramatically, it only makes sense that your retirement plan includes contingency plans for living as long as age 100. After all, population projections tell us that there will be a ten-fold increase in the number of centenarians (those aged 100 and over) between 2013 and 2063. Today’s 65-year-old can expect to live almost 21 years beyond retirement, according to Statistics Canada.
Start Your Plan
Accordingly, you should start your income longevity planning immediately, says Dwayne Rettinger, an executive financial consultant with IG Private Wealth Management, based in Guelph, Ont. “Decide on your retirement lifestyle,” Rettinger suggests. “Then add to your registered retirement savings plan (RRSP) income with a complementary portfolio of investments.” Many advisors used to recommend fixed income to retired clients, on the assumption they were safer and provided a guaranteed rate of return. That thinking is changing, and many advisors now recommend blue chip stocks, often the only way to achieve your desired rate of return.
Remember, you can continue contributing to your RRSP up to the year you turn 71 years of age, after which you need to collapse the account into a registered retirement income fund (RRIF) or registered annuity and begin a series of minimum withdrawal requirements. Your RRSP contribution limit for 2018 is 18% of earned income you reported on your tax return in the previous year, up to a maximum of $26,230. For 2017, the upper limit was $ 26,010. Note that if you have a company pension plan, your RRSP contribution limit is reduced.
Projecting Spending & Expenses
Rettinger also suggests assessing your projected spending for essential and discretionary expenses and adopting an investment strategy that will match your spending needs. For example, plan to meet such essential expenses as housing, food, clothing and medical treatments for longer than your life expectancy; plan to spend an increased amount for discretionary expenses like travel, dining out and a new car during the first ten years that diminishes thereafter.
After retirement, manage your retirement savings withdrawal rate based on the size of your retirement savings, the average return on your investments over time, and the number of years you plan to make withdrawals. Life insurance can be used to shelter excess capital and maximize the value of your estate, Rettinger notes, adding you should consider a life annuity that will provide a guaranteed regular income no matter how long you live.
Protect Your Income
You should also protect your income (and your spouse’s) with life insurance and supplementary health insurance including disability, critical illness and long-term care coverage. Revisit your plan regularly, Rettinger adds, to assess investment performance, changes in expense levels or any other factors that can impact how much you can spend in retirement and for how long.
Living a long life is something to celebrate. Make sure your retirement funds don’t run out so you can still enjoy those years.
This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Dwayne Rettinger is solely responsible for its content. For more information on this topic or any other financial matter, please contact an Investors Group Consultant.