Content from The Globe’s weekly Retirement newsletter. Sign up here
Some seniors are too frugal in retirement, curbing spending on goods and services they can afford that would make their lives easier and more enjoyable.
The so-called “retirement consumption gap” often stems from an inability to switch off a saving mindset and fears of running out of money, especially as the cost of living rises and people live longer.
A 2021 U.S. report showed the number of households that can fund their retirement increases dramatically to 48 per cent from 18 per cent during the first decade of retirement, driven by reduced spending. Still, almost a quarter of Canadian retirees described their lifestyle as frugal, according to a 2019 Sun Life Financial Inc. survey.
Some advisors say it’s their job to help clients with a solid financial plan feel good about their frugality without shortchanging their retirement.
“Frugality is a character trait,” says Rona Birenbaum, certified financial planner (CFP) and founder of Toronto-based Caring for Clients. “People who were always frugal can’t just turn off the switch.”
She notes some well-off clients check in with her before making a major purchase such as buying a new car or renovating their bathroom.
“They’re not looking for approval, but confirmation. They’re being responsible,” Ms. Birenbaum says.
Advisors can also work with clients to ensure they’re not making “irrational saving decisions,” she adds, such as cancelling a long-awaited trip to visit grandchildren that would make their lives more fulfilling.
Read the full article here.
How to know if your retirement savings are on track
In the latest Charting Retirement article, Frederick Vettese, former chief actuary at Morneau Shepell and author of Retirement Income for Life, on how to know if you’re saving enough for retirement here.
Can Leonard, 68, afford to retire in a few years and spend time where ‘the weather is pleasant’?
At age 68, Leonard is planning to work a few more years in his $83,000-a-year transportation job, but he’s wondering whether he can afford to retire at 75. He has some savings, a home in Vancouver with a mortgage and a second property that he rents out to a relative to cover costs.
Leonard is single again with three adult children. By his own account, he lives modestly.
“I don’t buy clothes unless I need them,” Leonard writes in an e-mail. “As to the groceries, I don’t spend that much – sometimes $200 a month and sometimes more,” he adds. Because he travels often for work, some of his expenses, including meals, are covered by his employer.
“I want to keep working while I am still healthy and have the ability to earn an income to offset any personal expenses,” Leonard writes. “I’d like to purchase a new vehicle that’s reliable and easy on fuel.” He plans to downsize to a small bungalow or apartment before he retires but is open to other options such as renting.
“When I retire I would like to spend three to five months somewhere that has a low cost of living and the weather is pleasant,” Leonard adds. He wonders whether he will have enough money to sustain his lifestyle when he retires from work. His retirement spending goal is $60,000 a year after tax.
“Will there be any monies left over to provide any assistance to my children when I pass?”
In the latest Financial Facelift, Anita Bruinsma, a certified financial analyst and the founder of Clarity Personal Finance of Toronto, takes a look into Leonard’s situation.
Want a free financial facelift? E-mail email@example.com.
In case you missed it
How proactive estate planning can help minimize your loved ones’ tax burdens
Most people don’t want to think about their own death – let alone talk about it. This unwillingness to contemplate their own mortality means many Canadians lack the knowledge to engage in effective estate planning, a new study suggests.
The RBC survey of 1,501 Canadians, conducted in the last week of March, showed a general lack of awareness about wills and estate planning. For example, 61 per cent don’t feel knowledgeable about things such as probate – the legal process of validating a will in court and distributing assets – while 57 per cent were not aware that estate taxes could be reduced through insurance policy benefits.
This is striking, given that the vast majority of Canadians want to avoid unnecessary estate fees and minimize out-of-pocket settlement costs. “But they don’t know the products that can help to accomplish this,” said Selene Soo, director of wealth products for RBC Insurance.
Estate planning helps manage and distribute assets after death, including who receives your property, when and how it will be transferred. “It’s about sitting down and structuring your finances in such a way that you minimize taxes and fees,” Ms. Soo said.
Doing this requires assessing which financial products can help maximize what your loved ones receive and minimize tax burdens, including probate fees – a tax levied by the government on a deceased person’s will, which can be as high as 1.5 per cent in Ontario and as low as 0.05 per cent in Alberta.
Read the full article here.
France is having a pension crisis. Why isn’t Canada?
France is having a pension crisis. On Thursday, in advance of a decision from the country’s constitutional court, protesters piled mounds of garbage in front of the building. It’s the latest memorable visual from weeks of marches, protests and strikes that have swept the country since President Emmanuel Macron announced plans to raise the retirement age.
The United States is also having a pension crisis, though quietly and in slow motion. Republicans have long advocated averting calamity by cutting, gutting or privatizing the national pension plan known as Social Security; Democrats propose the opposite, namely higher benefits paid for by higher premiums. American politics being what it is, there’s been no agreement, so the Social Security continues to wend its gentle way toward the iceberg. The Congressional Budget Office says that unless premiums are raised, the deficit is increased or taxpayers kick in cash, pension benefits will have to shrink 23 per cent by 2033.
And Canada? Canada is not having a pension crisis. You may not have noticed. “Absence of Crisis Expected to Continue Indefinitely, Experts Say” is not a headline we tend to put on the front page.
Read the full article here.
Q: I do not have any family member or other person to be executor of my will so I have to use a professional executor. I am considering signing up with a bank or trust company, but it seems that the fees charged come off the gross amount of assets at death before income tax, probate fees and any debts owed are taken off. Would it be wiser to reduce one’s assets, instead, by signing up to have a charitable annuity with a charity one plans to leave money to in one’s will?
We asked Isabelle Cadotte, Market Lead, Scotiatrust, Southern Prairies, to answer this one:
Depending on the province, the executor could be entitled up to 5 per cent in fees of the gross value of the estate, whether they are a professional executor or a family member or friend. There are benefits of using a trust company, including continuity of service and their substantial institutional knowledge of managing estates efficiently and in compliance with legal, tax and accounting rules.
Charitable annuities are usually offered by non-profit organizations. Some donor advised funds are also able to facilitate philanthropic plans with charitable annuities. They are marketed as a contract between you and the non-profit whereby you make a sizable irrevocable gift of your assets in return for a tax deduction and an income stream for your lifetime. The annuity could effectively reduce the gross value of your ultimate estate. But it’s important to keep in mind you must be comfortable with the idea of giving away a substantial part of your assets and have trust in the charity or public foundation with whom you are setting up the annuity. Another possible strategy is charitable permanent insurance.
When it comes to charitable gifts, it’s crucial that your legacy plan be in writing so that your family or executor have a clear understanding of your intentions and how to fulfill your wishes. In fact, an executor cannot make a charitable donation on behalf of your estate unless it is written in your will. By consulting with experts across legal, tax and insurance you can understand all the implications a donation will have on your estate and, perhaps more importantly, where you want to make an impact.
Have a question about money or lifestyle topics for seniors? E-mail us at firstname.lastname@example.org and we will find experts and answer your questions in future newsletters. Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Read more here and sign up for our weekly Retirement newsletter.