Is Working Longer the Key to a Comfortable Retirement for 1 in 5 Canadians Over 65? Discover What You Need to Consider

To numerous Canadians, retiring from their jobs at 65 and having an economically stress-free retirement is a dream they have likely abandoned.

Actually, in 2022, one out of every five Canadians between the ages of 65 and 74, which represents 21%, was working According to the latest census data from Statistics Canada, this includes both workers born in Canada and those who have immigrated.

With Canadians living longer , struggling to put enough money aside For planning for retirement—whether through savings or investments—is comprehensible.

However, if you're approaching 65 and your retirement savings haven't reached their desired level, continuing to work for an additional three, five, or even ten years might not compensate for years of inadequate retirement planning.

Before deciding to commit to several more years at your current position, consider asking yourself these questions.

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1. Are you keeping your expenses within limits?

Douglas McCorkle, a financial advisor at HollisWealth based in London, Ontario, mentions that numerous clients he interacts with lack the self-control needed to prioritize their long-term requirements over immediate wants.

The individuals who approach me at a more advanced stage in their lives often express concerns about whether they will manage to retire," explains McCorkle. "Mathematically speaking, this isn't feasible as they've invested most of their efforts into immediate gratification rather than preparing for retirement. They're led to believe that everything must be attained right now. That’s not true—enjoy your present moments, yet also make sure to secure your future.

Staying within your budget is the initial step towards guaranteeing you'll have funds available for a retirement savings account. A simple method exists to evaluate exactly what resources you have at your disposal.

The sole document you should review is your tax return," states McCorkle. "This will indicate the amount of money available for spending. How you utilize this money is entirely your choice.

2. Have you determined the amount of money required for a comfortable retirement?

There isn’t a one-size-fits-all figure for retirement savings. Your personal circumstances—such as income, tax rate, financial inflows, responsibilities like dependents, aspirations, and debts—all influence how much you’ll need for retirement.

If your decision to continue working is based on reaching a specific monetary target, yet you haven't actually determined the exact figure you aim to achieve, then this could be problematic. need To generate income with a financial advisor, you may find yourself working fewer hours than expected.

Not everybody will need $1 million to retire comfortably.

McCorkle states, "Only spend what is necessary; everything else falls into the 'desire' category."

McCorkle states that numerous Canadians planning their own retirement often overlook considering their post-retirement tax circumstances. For instance, if someone’s annual income decreases from $80,000 to $50,000 upon retiring, their tax liability will consequently decrease as well.

Including Old Age Security and Canada Pension Plan income, this individual might end up with more financial resources compared to when they were employed.

"We need to get rid of the notion from our thoughts that you require an enormous sum of money to retire, or that retirement isn't possible until you can survive on the interest alone," according to McCorkle.

3. Is an adjustment needed for your investment approach?

Many people believe that when individuals approach retirement age, they must alter their investment approaches. The prevailing view suggests that those anticipating a reduction in work-related earnings should minimize risks and focus primarily on secure investments that provide steady income, such as bonds and certain securities.

If you're extending your work hours because of financial needs, this might seem like a reasonable approach. However, it's more of a suggestion than a strict rule. Financial advisors recommend avoiding the urge to hastily reshape your investment strategy just as you reach age 65, particularly if your current plan has proven effective so far.

“‘If it isn’t broken, there’s no need to fix it,’ McCorkle states. ‘You simply have to tweak it from time to time.’”

Suppose you were 65 years old and happened to be one of McCorkle’s clients, experiencing an extraordinary 83% gain from one fund within your portfolio because of well-timed purchases and sales. Typically, both you and your financial advisor would be advised to rebalance your holdings, selling off some successful growth-oriented equities in favor of more stable fixed-income assets.

The issue is that these investments frequently fail to match the pace of inflation.

If you're in a dividend-generating position and receiving yields between 3% to 4%, you're staying competitive," he states. "Bonds won't suffice.

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4. Do you believe real estate will be your savior?

As interest rates gradually decrease and house prices continue to rise, the idea of buying a property and capitalizing on its value increase for a lavish retirement might seem quite appealing. Many such dreams tend to be like that.

However, if your retirement funds are barely enough, investing them in a home might not necessarily allow you to avoid working for additional years.

I'm discussing this matter with my clients," McCorkle states. "I just inform them, 'This will not occur.'

If interest rates begin increasing, however, buyer demand will likely decrease. This could alleviate some of the pressure causing home prices to soar and introduce a degree of unpredictability for sellers: How much can they expect their properties to fetch in a more balanced real estate environment?

Furthermore, increasing interest rates could make current affordable home loans unattainable. Imagine securing a great deal on your mortgage at 58; however, if that rate were to double by the time you're 63 and continues to rise as you reach 68, it would significantly impact your financial situation.

Debt is the greatest adversary of retirement," according to McCorkle. "Entering retirement with debt is extremely detrimental. Many people fail to understand this.

Sources

1. StatCan: Employment Based on Preference and Need Among Seniors Born in Canada and Immigrants (April 24, 2024)

This article One in five Canadians aged 65 and older continue to work. However, is this essential for a more secure retirement? Consider these factors: originally appeared on Money.ca

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