How to confidently spend your money in retirement, advice from a retiree on enjoying life and how much is too much in your RRSP

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As a financial planner, Warren MacKenzie applauds the efforts of his clients to save money for retirement. But he sees many struggling to spend the funds they so carefully put away once they’re retired.

Mr. MacKenzie tells the story of one Ontario-based retiree in his late 60s, with a net worth of $8-million, who has the cashier at McDonald’s ring through his breakfast order in separate transactions. That way, he can avoid paying the provincial sales tax, which doesn’t apply to restaurant meals under $4 – a saving of 56 cents on a total food bill of $7.

“It’s a force of habit, and his instinct is to be frugal; why throw away 56 cents?” says Mr. MacKenzie, head of financial planning at Optimize Wealth Management in Toronto. He says the example is not uncommon among people who are used to being frugal, regardless of their net worth. “People have learned a lot about how to accumulate wealth and how to manage wealth, but they have very little information about how to use wealth wisely to maximize happiness,” Mr. MacKenzie says.

Spending money can be difficult for many retirees, especially after decades of thrift. Managing in this so-called decumulation stage – especially amid rising inflation and a possible recession on the horizon – requires the same careful planning they used to create their nest egg. Mary Gooderham reports.

Closing the ‘grey gap’ could provide solutions to labour shortage

Hundreds of thousands of experienced workers are on the sidelines, even as a labour shortage tightens its grip on the Canadian economy. Immigration has been touted as a solution, but that process would take months or years, even without mounting backlogs. Subsidized child care will add to the labour pool, but that expanded national system will take several years to fully roll out.

Luckily, there’s a huge cohort of workers, with ample experience, that could fill many of those vacancies: older Canadians, including seniors. Patrick Brethour reports.

Why this 50-something couple should reboot their retirement spending plan to buy a bigger townhouse

In their early 50s, with well-paying executive jobs, Leo and Linda want to sell their two-bedroom Toronto townhouse and buy a larger one, which would mean taking on substantial new mortgage debt.

They have no children “and are in the sweet spot of our respective careers,” Leo writes in an e-mail. He grosses $200,000 a year while she makes $125,000. Their existing townhouse is valued at $800,000 with a mortgage outstanding of $180,000 that they plan to pay off in four years. They have some savings but no work pensions. “Can we afford to upsize our house and still hit our retirement goals?” Leo asks. “Is it advisable to carry mortgage debt into retirement?”

Leo plans to retire from work at age 67, Linda at 65. They plan to travel extensively for the first few years. Their retirement spending goal is $120,000 a year. “This covers our typical living and spending patterns and would provide a sleep-at-night factor,” Leo writes. In the latest Financial Facelift column, Matthew Ardrey, a vice-president and portfolio manager at TriDelta Financial in Toronto, looks at Leo and Linda’s situation.

Advice from a retiree on enjoying life with your partner

In the latest Tales from the Golden Age, Kathryn Brookfield, 69, of Winchester, Ont., talks about retirement and the unexpected death of her husband last year. “My advice to others is that, if you’re healthy enough and have the finances, go travelling as soon as possible. And enjoy spending time with your partner because you never know what might happen.”

Ask Sixty Five

Question: I’m single, in my late 40s and saving for retirement. I’m hoping to retire around age 60. I’ve heard there’s a limited number of RRSPs that a person should have to avoid paying too much tax in retirement. Is there a magic number or formula for this that I should consider? Thanks in advance for any information you can provide.

We asked Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth, to answer this one:

In my humble opinion, you can never have “too much” money in your registered retirement savings plan (RRSP). This is one of the myths I discussed in my report, In defence of RRSPs. Sure, you pay tax when the funds come out of the RRSP, but you got a tax deduction when the funds went in. In the interim, you’ve been able to earn tax-free returns on the funds growing inside the RRSP.

If your tax rate at the time of contribution is either higher or the same as your tax rate at the time of retirement when you withdraw the funds, the RRSP is a no-brainer. In fact, even if your tax rate is higher at the time of retirement than it was when you contributed, given a long enough time horizon, the value of the tax deferred growth can exceed the excess tax, as illustrated in my report Just do it: The case for tax-free investing.

Of course, saving for retirement can also involve maximizing your tax-free savings account (TFSA). Whether you choose the RRSP or TFSA first will depend on a number of factors, including your tax rates today versus the tax rate in the year of withdrawal.

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Have a question about money or lifestyle topics for seniors? Please e-mail us at sixtyfive@globeandmail.com and we will find experts and answer your questions in future newsletters. We can’t answer every question, but we’ll do our best. Questions may be edited for length and clarity.