Tag Archives: Retirement Expenses

Leaks in your Retirement Savings

Leaks in your Retirement SavingsYou have worked hard to save for retirement. Your family may have forgone other experiences etc in your life to save for retirement. You expect that there will be enough money at the end of your working years to live comfortably. But what if you found out that there are leaks in your retirement savings in small amounts over the years. That this amount was going to make you have to work a few years longer. Or perhaps forget about trips that you may have planned for your retirement. This is the subject of this post. How to identify leaks in your retirement savings? Also how to prevent them from making a significant difference in your retirement life style.

Leaks in your Retirement Savings – What are they?

They are divided into two types, some under your control and others that are smaller and sneaky but still have an impact on your total value of your savings when you retire.

  • Hardship withdrawals
  • Withdrawals prior to full retirement
  • Loans from your retirement plan
  • Cash outs from plans
  • Excessive trading fees
  • Mutual Fund fees
  • Administration fees
  • Selling low and buying high

More Details

Hardship withdrawals – funds are withdrawn and not repaid to deal with extreme hardship issues such as medical situations

Withdrawals prior to full retirement – funds withdrawn after age 59 to deal with pre-retirement issues and not repaid. Once these funds are withdrawn they are not earning income and you also lose the compounding effect

Loans from your retirement plan – taking a loan from your plan and not repaying it. Not only do you have to pay taxes on the withdrawl, you lose forever any future income that this money might have generated.

Cash outs from plans – employees change employers all of the time and you do not want to lose site of the money that has been set aside for your retirement Transfer the funds into the new employers retirement fund or into a locked in plan

Excessive trading fees – trading fees are expensive and if you are doing a lot of trading you could be eating into any profits that you may have made.

Mutual Fund fees – they charge a fee usually hidden regardless of whether the fund does well or not. Can you afford to pay 1% to 2% every year to your mutual fund management team?

Administration fees – some advisers charge a fee every year to administer your account. Is it reasonable? Can you get the same service or better service somewhere else?

Selling low and buying high – timing the market is extremely difficult. Most people end up buying as the market is increasing and then selling as it is declining because they are afraid they are going to lose everything. Invest in blue chip dividend paying equities and focus on the long term.

Easy Ways to Cut Spending in Retirement

Easy Ways to Cut Spending in RetirementMany consumers feel that they should just continue living life in retirement. Live the same way they did when they were working. They do not consider that they may have to cut spending in retirement. The unfortunate reality is that with less income they are going to have to make some choices. Regarding their lifestyle and how they spend their money. There are some easy ways to cut spending in retirement. Fortunately some expenses will decline naturally.

For example they will no longer need to pay to commute to work every day. As a result there is less wear and tear on the car and there is less operating costs to be concerned about. But this might not be enough and they will need to reduce expenses in other areas. We put together a list of areas to look at that can be considered to reduce your overall spending. They may not all apply to you personally. But even if one area does, then it means there is more money left in your pocket to be used for other priorities.

Easy Ways to Cut Spending in Retirement

  • Track Spending
  • Trim Food Costs
  • Pocket Savings From Sale Items
  • Reduce Your Rent
  • Shop for Best Price for Services
  • Hunt for Travel deals
  • Shave Savings from Spending Categories
  • Ask For Discounts
  • Pay With Cash

Track Spending – once you know where you are spending your money, better decisions can be made regarding where to trim expenses.

Trim Food Costs – buy in bulk, freeze leftovers, look at the expensive items to see if they can be reduced or eliminated

Pocket Savings From Sale Items – when you buy something on sale (which you should always do and never pay full price) pocket the savings and set the savings aside for an emergency

Reduce Your Rent – if possible by negotiating with the landlord, rent out a room, or downsizing

Shop for Best Price for Services – always compare the cost of services and what they are providing, ask for discounts, senior discounts, cash discounts etc.

Hunt for Travel deals – travel off-season, look for sales and take advantage of all-inclusive packages which are often less expensive that paying individually for airfare, hotel and meals.

Shave Savings from Spending Categories – look at each category of spending and ask yourself if you can reduce spending in each area by 10%

Always Ask For Discounts – the worst that will happen is that they say no. Often business people will reduce the cost by 10% or throw in a needed service that you were putting off for free.

Pay With Cash – only when they offer a discount for cash. Many gas stations do this and some stores will also offer discounts when you pay cash. Take advantage of these offers to save even more money.

High Housing Cost Makes it Difficult to Retire

High Housing Cost Makes it Difficult to RetireYour home is paid off and yet you are wondering if the high housing cost makes it difficult to retire. When you retire some costs will decrease such as work related costs. However there is a good chance that other leisure related costs will go up since you have more time on your hands. Then of course there are the taxes, utilities and general upkeep on your home. They will increase by some amount every year. Depending on your pension and  other income, your expenses could increase faster than your income. For many people this represents a significant problem and may push them out of their homes! In this situation, high housing cost makes it difficult to retire.

High Housing Cost Makes it Difficult to Retire

There are several options however it is important to analyze your costs. How much they will increase year over year as well as your income. Once you have these numbers you can decide on the appropriate alternative to select.

  • You plan to retire and stay in your home
  • Should you down size
  • Sell and Rent

Each of these scenarios should be assessed after assessing the following:

Regular operating costs for things like utilities, heat, electricity and other regular monthly and annual fees that are part of maintaining a home. Some may have HOA fees, while others will hire lawn maintenance. All of these regular fees should be included.

Maintenance Costs

Maintenance costs whether you like it or not occur every year. Small things such as leaking faucet repairs, window repairs, maintenance of lawn mowers etc. While they should not be large amounts they never the less add up over the year.

Housing repairs such as roof replacement, driveway repairs, major appliance repairs or replacement including furnace and air conditioning.  These are big ticket items and need to be budgeted for if you plan to stay in your home. Even if you move, these also could be issues that you need to deal with if you purchase a home that is not brand new.

If you do decide to move, take into account everything associated with the move which could include real estate fees, legal fees, bank fees, land transfer taxes, moving costs, decoration costs, updates and repairs to the home you move to. Even if you move to a brand new home there will be landscaping for example, window coverings, and decoration costs.  Discuss all of these items with your  spouse to make sure that you are agreed on what needs to be completed associated with moving.

Confirm your cash flow in retirement based on the analysis you complete for the above scenarios that reflect your personal situation and then make up your mind regarding which one makes the most sense for your situation.

Challenges in Retirement

Challenges in RetirementThere are lots of challenges in retirement. Many people retiring without enough money, health issues and family issues to deal with. Still many people can have a great retirement if they properly planned and saved enough money. Unfortunately many Retirees are broke due to poor savings while they were working. Sometimes there are uncontrollable events in their lives, and the need to provide support to their families.

Challenges in Retirement – Stress in Retirement

Not having enough money to live comfortably in retirement causes a great deal of stress during what should be the best years of their lives. Without sufficient funds to live on, wondering where food is going to come from or how you will pay for it and going to secondhand stores it can be very difficult for many seniors. North America is not exactly a senior friendly continent as compared to other locations such as  in Europe. We do not seem to value our seniors in the same manner that they do in Europe and as a result many are struggling with a great deal of stress in their lives.

Loneliness in Retirement

Not having sufficient money during retirement with family often many miles away it can get quite lonely in retirement. Unless they live in a neighborhood where people have lived all their lives, they have friends to socialize with many seniors find themselves unable to get out to be with friends and socialize.

Ignoring Health Issues

Lack of money also means that they tend to ignore health issues. If there is insufficient insurance to pay for health coverage many health related issues will be ignored until it becomes an emergency. Older age seniors develop life-threatening issues just because they do not have sufficient funds to pay for health costs.

Worry about Health costs

There is a constant worry about how they’re going to pay for health related costs. Even a visit to the doctor or the dentist may add additional stress and aggravate an already existing health condition. Insufficient savings, or insufficient health coverage can lead to stress related health issues. Ignoring health issues can also cause more serious issues to develop.

More Retirees are Working

As a result of all of the above, we are seeing more and more retirees going back to work. They may choose to work at part-time jobs that pay minimum-wage but at least they are getting out and making some money to put food on the table. This income along with  meager savings that they may have and in a few cases provides healthcare coverage allows them to live a better life.

Still Getting Frisky

Another interesting fact is that many seniors are still getting frisky with the opposite sex even though they may be getting up in years. Recent articles in the news has referred to seniors partying and dancing leaving to extracurricular activities. This is great news and will keep everybody healthy.

Moving in With the Kids

In some cases when ones spouse passes away, the other spouse will move in with the kids. If there is insufficient room in the home, this can lead to lots of stress for everybody. In some cases mom or dad will integrate well with your family until  health related issues crop up.

Traveling is a Dream

And for many seniors traveling is actually a dream that they dream about while they were still working but sadly are unable to fulfill that dream once they retire due to insufficient funds. They have enough to live on, in some cases comfortably but not the extra money that they need to travel and see the world the way they anticipated. This is a sad reality that sinks in a few years after they retire.

Targets for Scammers

Many seniors are also targets for scammers. It’s an unfortunate aspect of our society. With lots of sales pressure placed on seniors, they often will separate them from their money leaving them in an even worse situation than they were before. This is a terrible reality.

With all of these challenges and retirement it is still possible to enjoy retirement and make the most of your life regardless of the situation.

How much income will you need in retirement?

How much income will you need in retirementMany consumers want to know the answer to the question, “how much income will you need in retirement”? The common guideline for the amount of money or income that you will need during retirement has been an average of 70%. Most advisers will aim for that number. This is based on the fact that most people will not need as much money to live on during retirement. After all they do not have the expenses of going to work. Their mortgage should be paid off. All of their debt including car loans should also be reduced to zero. They also have less expenses for getting to and from work, less clothes etc.

How much income will you need in retirement – Spending More ?

They may have objectives of going on a vacation, visiting grandchildren, perhaps a once in a time life vacation. For many consumers this number of 70% is probably quite realistic. However it may not work for everyone. It is important to understand what your situation is and how much money you will need once you retire.

For example the couple that is spending to the level of their paycheck each month just before retirement may have difficulty surviving on 30% less than they currently make. Unless they reduce their expenses they will quickly go into the hole. They may run up debt that they probably will not be able to pay for. They may be required to take another job, sell their home to cover expenses etc. This is not something that you want to find yourself needing to do.

Plan for Retirement

If you are nearing retirement now is the time to complete an assessment of how much income you will actually have during your retirement taking into account employment pensions, government pensions and income from savings. At the same time evaluate all of your expenses to understand which ones will continue during retirement and those that will be reduced.

Once you have these two numbers you will be able to quickly understand weather 70% of your income is realistic or not. Don’t forget to include one of a time expenses such as vacation, supporting children, and health issues that may increase the 70% requirement of your income. There is also an age factor to take into account as well. When you initially retire and have your health, there are more opportunities to spend your money on the fun things you like to do. As you age, you may have to gove some things up and switch to others that actually cost less. The big unknown is what will your health care cost and how much will you need to pay for the level of care that you need?

For more information about retirement income and how much you will need in retirement, click here.

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Retire early: a second paycheck comes in handy

second paycheckMany people dream of retiring early and enjoying the good life. The reality is though that there are a number of reasons why people cannot retire early. For example they may not have sufficient savings. They may still have children going to university and college. Or they may not want to retire. In fact many would prefer to continue working to maintain their social life.

The second paycheck comes in really handy and augments the family income. This same income can be used to enhance your savings. The family can prepare for the quality of life that they would like to have during retirement. It also keeps your hand in the business and keep you current with what is going on in your career area. Many people will move from the regular career oriented job, into a new consultant type job for a number of years after they retire.

The question that many people ask themselves is what kind of a job should they consider after they retire? There are several schools of thought about these jobs. For example many would like to continue in the same career. There are many consulting type jobs that may be available within your industry.

Other people would prefer to try something brand-new. They only want to work for several days or maybe 20 to 30 hours a week. This will give them time to pursue some of the other things they like to do. They did not have the time before they were retired. Either way they have income coming in.

What Second Paycheck or Job do You Want

While some of these jobs may not be as challenging and as interesting as the job they had during their career, it still gives them an opportunity to get out of the house and an opportunity to meet people as well. If you try something outside your career experience it is also a learning activity for you.

Many colleagues of ours have very specific requirements about getting a second job after they retire. Yes you want the money, but also there are some specific issues that they have concerns about.

For example many people want to get away from the office politics. They just want to do the job and leave when the job is finished. They don’t want to become an employee, preferring to work as a consultant with a specific start date to the contract and a specific end date to the contract.

Many other people would prefer to work in retail where they have specific hours that they work everyday and then are finished with no issues or politics to be be concerned about at the job. When they leave the store their finish for the day and don’t think about it again until they come back the next day or whenever the next shift is scheduled.

If you’re looking for a second paycheck we urge you to think about and plan the kinds of jobs that you would like to pursue to make sure that your objectives are being met, whether it’s additional income, a social life, something interesting and challenging to do or something just to fill the time that you now have available.

For more ideas about retirement income, click here.

What is the true cost of retirement?

cost of retirementIf you are about to retire you might be wondering what is the true cost of retirement? Most financial advisers use a couple of assumptions in assessing how much money you need to save for retirement. The first is that they assume the standard duration of retirement will be 30 years. This is regardless of your health and retirement date. The second assumption that many advisers will use is that you will need 70% to 80% of your income after retirement. This is supposed to cover your expenses and retirement plans.

As always, with many planning activities, the devil is in the details. Every person, and every couple have different requirements and needs. They have different situations that they are dealing with. A retirement plan should be customized for the couple or individual. It should ensure that they have sufficient money available for them in retirement to maintain their quality of life.

What is the true cost of retirement

These two assumptions are a good starting point only.

For example if you are 65 and just retiring, the 30 year life expectancy may be fine for one couple. Especially if their ancestors lived well into their 90s. On the other if hand your family history suggests living to 70 or 80 years of age,  a 15 year plan might be more practical.

True Cost of Retirement

With regards to only requiring 70 to 80% of your pre retirement income. There are many variables that should be taken into account. We will cover a few.

For example consider if you’re still supporting children who are in college. They may have tuition payments and other related expenses. You may need more than your 80% for the first couple of years.

Are you retiring debt-free? Is your mortgage paid off? Are you still paying a car loan? These are major monthly expenses that have to be factored into your pre-retirement expense. As well as your post retirement expense. These factors will help decide if you will have sufficient money to cover all of your cash expenses during retirement.

Consumers also need to consider what retirement expenses will increase during the retirement years. For example inflation which has been pretty constant and in a range of 3% for the past 20 years. It will eat into your retirement income, particularly if you are on a fixed income. The longer you are retired the more inflation can be a factor. It is very important to factor in inflation.

Don’t forget Healthcare costs

Healthcare costs must also be considered based on your family’s history of healthcare needs and situation.

Your consumption will also change over the years. As you get older most people will spend less on clothing, food and other daily expenses.

All of this needs to be factored in to your retirement plan to ensure that consumers have sufficient money during retirement. Start with the 70 to 80% rule. Then adjust based on your own personal situation. You may also require the help of a financial advisor to create a retirement income model. It should be based on your savings and pensions as mentioned earlier

Retirement portfolio to match your expenses

Retirement portfolioI have heard many seniors talk about how they are living on a fixed income. Inflation is increasing and making their income not go as far as it once did. They worry about whether they will have enough money to do some of the things they want to do. They are getting older and must live on the same level of income. When many of these people complain about being on a fixed income they are actually receiving a small increase every year. This is an increase on their pensions which usually have a small inflation increase every year.

Most feel that these small increases are clearly not enough. They worry that inflation will really overtake them. Some are used to salary increases when they were working that increased their salaries faster than the inflation rate. Those types of salary increases are long gone. But that is no consolation to the many seniors who live on a fixed income even if there is a small increase every year. Bottom line, we all need to evaluate all of our expenses. Reduce where we can to counter the effects of inflation.

Increase Your Income

One way to gain increases in your income most years is to invest in dividend stocks Focus on those that increase their dividend every year. They should also have a growth component in their stock value. Although there are no guarantees, these stocks pay a dividend so you do have income from your investments. If your invest in the right companies, you may get an increase every year. In fact some companies have a record of increasing their dividends for many years. This is an enviable record and can be an important component of a retirement portfolio.

With dividends increasing every year your income is increasing. If the stock does well the value of the stock will also increase. When it comes time to sell your investment to be used as part of your retirement, you will be selling a stock that has also increased in value. This will help deal with the increasing inflation that we all know is there and will continue for many years.

Retirement portfolio – Avoid Cashing in Your Principal

Consumers who are retired and living off of pensions may find that they can live on the pension income they receive and also the income they generate from their investments without having to touch their investment principal. If this is the case, they are in an excellent situation to live into their late years without having to worry about having enough money to live on. In fact your investment adviser can calculate the income rates and the rate seniors may want to withdraw their money to ensure they can enjoy it in this situation.

Many people are not in this position. This is one of the reasons we urge people to save for their retirement regardless of whether they have a pension or not. It is an additional safety margin in case your pension is not as large as expected or inflation is much higher than anticipated.

Working Past 70, You Cannot be Serious

Working Past 70Working past 65! let alone 70 is becoming a reality for more people than we care to think about. Due to the recession over the past several years and many people losing their jobs, their homes and their savings, it has become an unfortunate reality. Perhaps you have already noticed that there are more and more seniors working in the service industry. You see them at fast food outlets, stores even good old Walmart. They perform low paying jobs to augment their income and possibly also obtain health care benefits.

The problem is a common one in the arena of personal finance. If you are approaching the age at which you’ve planned to retire, but find that you don’t have enough money saved, do you have a plan? Are you going to work longer. Can you work longer is another question for many people as well. They may not physically be able to work as long as they want to. If you find yourself in this situation and have some ideas, please leave a comment on our blog. We all need some advice and just sometimes the experts have it wrong. Good old common sense sometimes is the best medicine for us all.

Working Past 70 – Other Solutions to Stretch those Dollars

If you are younger than 40, then you have lots of time to make up your losses and also save for retirement. If you are 55 , 60 or even 65 and lost a bundle during the recession, work and severe belt tightening is probably in order.  Also you may have to make some compromises as well, such as moving in with the kids or even a good friend to share expenses. Financial planners do not usually talk about these solutions since there is no business for them  and they cannot generate any income from you. However sharing expenses like we did when we were teenagers and young adults may be the way of the future for many older adults on a tight budget.

One has to be very careful if you are going to enter into this type of arrangement. There are many desperate people who would not hesitate to take advantage of someone. In addition, compatibility is a very important element that is increasingly important as you get older. We all spend more time at home as we age, which means you spend more time with the person you are sharing with. Being compatible is extremely important to ensure a harmonious lifestyle.

Working Past 70 – Sometimes Working Beyond 55 is not Realistic!

If you have your health, and can continue to work in the same environment that you are use to, then working for a longer period is probably ok. But what if you cannot work in the same job, then what do you do?

For example if you have a physically demanding job, you may not be able to continue with this type of work into your 60’s. We all get bad knees, bad hips, backs and as a general rule have less energy. Doing a construction job may mean that you just cannot do it until the age that you planned on.

It could also mean that you need to retrain yourself and switch to another profession as a result. Teaching yourself and taking courses takes time and money, but thousands of people do this every year. You can train for that new job and in some cases continue in your new profession well into your 70’s.  Financial advisers, insurance agents and many other similar types of jobs are well positioned in this way.

Stay on top of Trends

What ever profession you have, it is important to stay current. Additional training and self teaching is an absolute must. You should think about learning something new each and every day to avoid becoming out of date with your job and with younger competitors. If you are a computer programmer, learn new programs, stay current with technology and all of the latest buzzwords. If you are in fashion design, every year brings something new, so you got to stay on top of your game.

On the other hand if you just need a little bit to survive and to top up your retirement income, you may want to consider a low stress job that gets you out and mingling with people. This brings us to our last major topic. How does one prepare for retirement?

What’s the best way to manage preparing for retirement.

Plan, plan and then plan some more. Every 6 months you should be evaluating your retirement plans and have emergency plans set up so that if something does not work out just the way you thought, you will be able to adjust and utilize one of your backup plans.

This is so important. There is no one set plan or recommendation since we are different, have different needs and objectives. However if you spend some time evaluating yourself and your needs, and then take action to achieve your plans, you might be ok. Whatever you do, don’t depend on anyone else but yourself to prepare for retirement. Not the government , your friends or your family and certainly not your company. They may or may not be around when it comes time for you to retire.

Take control of your life and begin to make your retirement plan today. Set some objectives and goals and work towards them.

Are you changing your own retirement planning to deal with the new realities? Please share by posting to comments. Spam comments will be auto deleted.

Retiring With Debt

Retiring With DebtThe following poll by RBC seems to indicate that many Canadians and by extension, Americans, are retiring with some form of debt. This debt includes mortgages, loans, and credit cards. It is a big concern for retiree’s. they worry about whether they can pay their bills while living on a fixed income. This apparently is a lot more common than most people like to admit!

There is really nothing wrong with retiring while still owing some debt. However you must take ownership of it. Set up your budget to be able to deal with this debt. Review your income levels when you retire. Take the steps you need to be able to pay your debt as well as the remainder of your expenses.

Take the time to read the results of the poll following. We will add a few comments at the end of the poll that we have re-listed here.

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Four-in-ten Canadians retiring with debt: RBC Poll

Inflation and taxes are top concerns for Canadians over the age of 50

TORONTO, April 26 /CNW/ – Four-in-ten Canadians (39 per cent) over the age of 50, who have assets of at least $100,000, retired with some form of debt and one-quarter (22 per cent) entered retirement with a mortgage on their primary residence, according to the first annual RBC Retirement Myths and Realities poll, which examines Canadians’ expectations and experiences in retirement.

The majority of retirees (70 per cent) feel it is still important to be able to save part of their income, yet more than one-quarter (28 per cent) have acquired new credit products since they retired.

“More and more, Canadians are carrying debt into retirement, which is not necessarily a bad thing,” said Lee Anne Davies, head, Retirement Strategies, RBC. “Having access to credit in retirement can be beneficial to managing income and cash flow and provide additional flexibility. To help make your retirement dreams a reality, our advice is to start early and prepare a comprehensive financial action plan that will keep you focused on paying down debt and saving, as well as establishing a budget for both your pre- and post-retirement years.”

Inflation and Taxes

Inflation and taxes are among the top concerns for retirees, with more than one-third (35 per cent) worried that inflation will negatively impact their retirement income, compared to 43 per cent of pre-retirees. Six-in-ten (62 per cent) retirees worry about taxes on their income, with two-thirds (66 per cent) believing the percentage of their income required for taxes will rise in the next 10 years. Retirees say they are currently living on 56 per cent of their pre-retirement income, indicating that spending drops significantly in retirement.

“It’s not uncommon to be concerned about maintaining a sustainable level of income in retirement, but costs you never counted on may also arise,” added Davies. “For example, our poll found that almost one-in-five retirees spend over $1,000 annually on prescription drugs. Working with a qualified advisor can help you prepare for taxes, inflation and unexpected costs that may impact your retirement goals.”

These are some of the findings the RBC Retirement Myths & Realities poll conducted by Ipsos Reid from March 10-19, 2010. For this survey, a national sample of 2,143 adults aged 50 and over with household assets of at least $100,000 from Ipsos’ Canadian online panel was interviewed online. A survey with an unweighted probability sample of this size and a 100 per cent response rate would have an estimated margin of error of +/-2.1 percentage points 19 times out of 20 of what the results would have been had the entire population of adults in Canada been polled. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.

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Are You Retiring With Debt

So what should you do if you carry debt into retirement? Pretty much continue as usual provided that you have the income to support the debt. Make sure you can meet your monthly payments without difficulty.

Sometimes debt payments can hamper your life style. It can prevent you from doing some of the things that you would like to do in retirement. You may want to think about making some changes. One way or another you should reduce your debt. You might have to use some of your savings. You might have to downsize your home. In addition you might have to go back to work part time or full time. Some people will have to do all of these things to rid themselves of debt.

Make it a priority to avoid adding debt. Living on a fixed income it will be even more difficult to pay off additional debt as it builds up. If you have high interest debt such as credit cards, consolidate these into a loan. Or line of credit with a low interest rate. Destroy the credit cards or just keep them for emergency situations. Credit cards routinely charge in excess of 18% interest. At these rates, you will have a difficult time paying them off. Loans and lines of credit are currently around 5 or 6%. Loan interest and loan payments are much lower allowing you to reduce your principle much faster.

Add your comments to our post. We would be happy to consider them and add them to our blog. All reasonable and constructive comments accepted.