According to a 2019 Sun Life Financial Inc. survey, nearly a quarter of Canadian retirees say their lifestyle is frugal.iStockPhotos/Getty Images
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Some older people become too frugal after retirement, spending less on goods and services that they can buy to make life easier and more enjoyable.
The so-called “retirement consumption gap” often stems from the inability to switch saving mindsets and the fear of running out of money, especially as the cost of living rises and people live longer.
USA in 2021 report Research shows that the number of households able to prepare for retirement has increased dramatically from 18 percent to 48 percent in the first decade of retirement due to reduced spending. Still, nearly a quarter of Canadian retirees say their lifestyle is frugal, according to Sun Life Financial Inc. in 2019. investigation.
Some advisers say it’s their job to help clients with sound financial plans stay happy with frugality without cutting short their retirement plans.
“Thrift is a personality trait,” says Rona Birenbaum, a certified financial planner (CFP) and founder of Toronto-based Caring for Clients. “People who have always been thrifty cannot switch off.”
Some wealthy customers consult her before making big purchases, such as buying a new car or renovating a bathroom, she said.
“They don’t want approval, they want confirmation. They have a responsibility,” says Birenbaum.
Advisors can also work with clients to make sure they aren’t making “unreasonable savings decisions,” such as canceling long-awaited trips to visit grandchildren that would make their lives more fulfilling, he said. He added.
Read the full article here.
How to know if your retirement savings are on track
In a recent Charting Retirement article, Frédéric Vettese, former chief actuary of Morneau Chepel and author of Retirement Income for Life, asks if you’re saving enough for retirement. We explain how to find out.
Can Leonard, 68, retire in a few years and afford to spend some time “where the weather is nice”?
Leonard, 68, plans to work in a $83,000-a-year trucking job for a few more years, but wonders if he can afford to retire at 75. He has some savings, he has a mortgage and a house in Vancouver, and he has a second one. He rents out the property to his relatives to cover his expenses.
Leonard is single again and has three grown children. By his own account, he lives frugally.
“I don’t buy clothes if I don’t need them,” Leonard wrote in an email. “When it comes to groceries, I don’t spend a lot. Sometimes it’s $200 a month, sometimes it’s more,” he added. As he travels frequently for his job, some of the expenses, including food, are covered by his employer.
“I would like to continue working as long as I am still healthy and have the ability to generate income to offset my personal expenses,” Leonard wrote. “I would like to buy a new car that is more reliable and consumes less fuel.” He plans to downsize to a small bungalow or apartment before retiring, but is open to other options such as renting.
“When I retire, I would like to spend three to five months somewhere with a low cost of living and a pleasant climate,” added Leonard. He wonders if he will have enough money to sustain himself when he retires from his job. His retirement spending goal is $60,000 a year after tax.
“Will there be any money left to help my children after I die?”
In the latest financial facelift, Anita Bruinsma, certified financial analyst and founder of Clarity Personal Finance in Toronto, examines Leonard’s situation.
Want a free financial makeover? Email finfacelift@gmail.com.
in case you missed
How Aggressive Inheritance Planning Can Help Minimize Your Loved One’s Tax Burden
Most people don’t want to think about their own death, much less talk about it. A new study suggests that a reluctance to ponder their own death means many Canadians lack the knowledge to effectively plan their estates.
An RBC survey of 1,501 Canadians conducted in the last week of March found a general lack of awareness of wills and estate planning. For example, 61% felt ignorant about things like probate (the legal process for verifying wills in court and distributing assets), and 57% were unaware that insurance benefits could reduce inheritance tax.
This is surprising given that the majority of Canadians want to avoid unnecessary real estate fees and minimize out-of-pocket settlement costs. “But they don’t know of a product that can help them achieve this,” said Selene Hsu, director of wealth products at RBC Insurance.
An estate plan helps you manage and distribute your assets after your death, including who will receive them, when and how they will be passed on. “It’s important to stay calm and structure your finances in a way that minimizes taxes and fees,” Su said.
To do this, you need to evaluate which financial instruments can maximize what your loved ones receive and minimize the tax burden, including probate fees. The probate fee is a tax imposed by the government based on the deceased person’s will and can be as high as 1.5 percent in Ontario and as low as 1.5 percent. 0.05 percent in Alberta.
Read the full article here.
France is in a pension crisis. why not Canada?
France is in a pension crisis. Protesters piled trash in front of a building on Thursday ahead of the country’s constitutional court ruling. It’s the latest memorable visual in the weeks of marches, protests and strikes that have swept across the country since President Emmanuel Macron announced plans to raise the retirement age.
The United States is also experiencing a pension crisis, albeit in quiet slow motion. Republicans have long advocated averting disaster by cutting, abolishing, or privatizing the national pension system known as Social Security. Democrats are proposing the opposite: more benefits at higher premiums. With no agreement as it is in America’s politics, Social Security continues to slowly tread towards the iceberg. The Congressional Budget Office says pension benefits must be cut by 23% by 2033 unless premiums are raised, the deficit is widened, or taxpayers don’t put in the cash.
And what about Canada? Canada is not in a pension crisis. you may not have noticed. “Experts Expect Absence of Crisis to Last Indefinitely” is not a front page headline we tend to make.
Read the full article here.
Q&A about retirement
Q: I have no family or executor, so I need to use a professional executor. I’m considering working with a bank or trust company, but it seems that the fees will be deducted from your total assets at death before deducting income taxes, probate fees, and outstanding debts. Would it be wiser to reduce your wealth by joining a charity pension with a charity you plan to leave money to in your own will?
We asked Isabelle Cadotte, market leader at Scotiatrust and Southern Prairies, to answer:
Depending on the state, an executor, whether a professional executor or a family member or friend, may be entitled to a commission of up to 5 percent of the total estate value. Benefits of using a trust company include continuity of service and organizational knowledge to efficiently manage real estate and comply with legal, tax and accounting regulations.
Charity pensions are usually provided by non-profit organizations. Some donor-recommended funds can also use charitable annuities to further their philanthropic programs. These are sold as a contract between you and the non-profit organization that provides a large, irrevocable gift of assets in exchange for tax credits and a lifetime source of income. Annuities can substantially reduce your final wealth total. However, it is important to keep in mind that you must be comfortable with the idea of donating a significant portion of your assets and have faith in the charity or public foundation setting up your pension. Another possible strategy is charitable permanent insurance.
When it comes to charitable giving, it is important to have an estate plan in writing so that your family and executors have a clear understanding of your intentions and how to fulfill their wishes. In fact, an executor cannot make a charitable donation on behalf of your estate unless it is written in the will. Consulting legal, tax and insurance professionals can help you understand all of the impact your donation will have on your property and, more importantly, where you want it to affect.
Do you have questions about money and lifestyle for seniors? Email us at sixtyfive@globeandmail.com Find an expert to answer your questions in future newsletters. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to feel confident, safe and live their best lives.read more here and sign up For our weekly retirement newsletter.
