When retirement is on the horizon, it’s time to take stock and figure out what your priorities are.
Ryan Remiorz / THE CANADIAN PRESS
Life is expensive, and it seems like unexpected expenses tend to hit when we can least afford themQ: Our plan was to retire in about 10 years, but these past few years, it seems that every time we turn around there’s another big expense to pay for. From having our furnace go and our son getting married to replacing a vehicle after an accident, maintenance between tenants at our rental property and our daughter needing help out of a financial jam, what can we do? It feels like we’ll never be able to retire at the rate we’re going! ~RussellA: Life is expensive, and it seems like unexpected expenses tend to hit when we can least afford them. As we get older, our incomes might be near their peaks and we may have less financial worry than when we were younger, but we may also feel the burden of responsibility more than ever. Everyone is a little different, but from what you describe, it sounds like the bank of mom and dad provides a lot of support for the whole family.To get your retirement plan back on track, you will need to make some decisions that put you back at the top of your goals. Start by taking stock of where you’re at right now: your budget, savings, tangible assets, debts and any company/private pensions. Then determine, as best you can, how much savings you’ll actually need to retire comfortably. Most Canadians really have no idea, but a financial adviser has tools available to help them provide you with a good estimate based on the numbers you provide.Prioritize your financial well-beingThe first step to getting your retirement savings back on track is to prioritize your own well-being and future financial stability. You are important and worth it — take care of yourselves while you’re still able to do so. However, I’m all too aware that for parents especially, this shift in thinking can be more difficult than balancing your budget.It is hard to turn down a child’s request for help, or to spend on a beer budget when you’d rather have champagne. You have less years left than your kids do to recover from a setback, and due to their own family commitments, your kids likely won’t be in a position to help you if you’re suddenly faced with an expensive health crisis or shortfall in retirement. Explain to your kids that you’re looking out for yourselves so that they aren’t forced to. It might take a few years for them to fully appreciate what that means, but once they do, they’ll be thankful you took that stance.Top 5 Retirement Planning TipsStart saving again immediatelyDon’t delay as you consider your options and start saving again immediately, even if you need to pay off debts. If you don’t save to cover all of the other expenses that will seem to come up out of nowhere, you will never get out of debt. If you’re not sure where to start, go back to your budget and see where you can cut back a bit. This interactive budget spreadsheet will help you spot savings quickly and easily. If you have TFSA or RRSP contribution room, use as much of it as you can and reinvest your tax refund into your RRSP the following year. If your employer has an RRSP matching program, use as much of it as possible. If you have the potential to earn extra income, take advantage of it while you can. Meet with your banker or financial adviser and review all of your investments to see if you can reduce fees or increase your returns without taking on too much risk.Savings Is Essential to Paying Off DebtDeal with debt the fastest way possibleTo make it easier to live comfortably on a reduced income in retirement, you need to take steps to pay off all of your debt before you retire. And yes, this includes mortgages, lines of credit and especially high-interest credit cards. If you think you need help paying your debts off, the time to apply for a debt consolidation loan or mortgage refinancing is while you’re working. It is much harder and/or more expensive to get credit once your income drops.If you’ve been turned down for a consolidation loan, speak with a non-profit credit counsellor in your area to explore other options. There are several that most people don’t know about. The counsellor can also give you information about how your debt management choices will impact you in the future. By getting your debts under control you’ll be able to redirect more of your income towards your savings goals.Top 5 Solutions When You Are Declined for a Debt Consolidation LoanBe strategic with your decisions and avoid taking on more debtIt has been said that you can have anything you want; you just can’t have everything you want. Extreme examples aside, there’s a lot of truth to this expression. It comes down to being reasonable with your decisions. Overspending in one category will leave you short in another. This applies to bigger expenses (e.g. buying a new car versus a good used one), as well as day-to-day spending choices (e.g. eating out more often than at home). Helping a child by giving more than you can comfortably afford will impact other decisions you make. It could even force you to downsize your home sooner than you had wanted just to pay off debt, which could lead to frustration or resentment. Life is too short to get stuck with spender’s remorse.Retirement at 75 or Saving for Our Kids’ Education?Re-evaluate your goals and expectationsWhile life these past few years might not be quite what you’d envisioned this close to retirement, you likely still have more reasons to feel blessed than stressed. This is a good time to re-evaluate your goals; is there opportunity to shift jobs a bit so that you’re happy working a little longer? Do you need to acquire any additional skills to transition into part-time work as you move towards full retirement, e.g. become a sessional instructor at a post-secondary institution? Maybe with your kids out of the house you have time and space to turn a hobby into extra income, or you could take in students or boarders who will provide you with the extra cash your savings account needs. There are options — set your expectations aside long enough to give yourself the freedom to at least consider them.Is the Cost of Living Stressing You Out? Tips and SolutionsThink about the legacy you’re leavingOne of the best legacies you can leave your children is the confidence you instil in them that they have the skills they need to be successful. In order to do that, find ways to support them through difficult times, without stepping in and bailing them out. Before paying for large expenses for adult children, e.g., education or the down payment on a home, create an estate plan and consider if your gift is part of their inheritance. While that may leave less for them once you pass, it helps them out at a time when they are planning for their own financial stability. However, avoid giving more than you can afford. People are living longer and healthier lives than they used to, so there’s a good chance you’ll be around well into your golden years.The bottom line on getting retirement savings back on trackGetting savings back on track takes due diligence but it’s a marathon, not a sprint to the finish line. Draw on each other’s strengths to make it easier, and remember to include some flexibility and fun so that you enjoy the journey. You may also want to let your family in on your plans so that they can support your decisions. A large part of managing money is emotional and psychological; not financial. Let your budget be the guide that gets you to your golden years successfully.Related reading:5 Hidden Costs of DownsizingWhy Not to Bail Your Adult Kids Out FinanciallyTurning Resolutions Into Results – 3 StepsScott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by email, check www.nomoredebts.org or call 1-888-527-8999.