5 Things you might not expect your first year of retirement
The key to happiness in your Golden Years? Get off on the right foot.
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You prepare for retirement your whole life — maybe as far back as your teenage years and that first check. You put cash aside. You invest. You live within your means and when the time comes, you downsize. So are you really, truly ready to retire?
Even with decades of preparation, surprises are likely to come your way that first year of retirement. Before the unexpected hits, here are five strategies retirees, and those about to take the plunge, need to put in place.
The adjustment period
Even if you have a smart plan for retirement, there’s still an adjustment period where leaving the labor force means far less money coming in and more going out. And let’s face it, pre-retirement habits and assumptions can be difficult to change.
If money from government sources and investments represents the upside, then spending habits — with an emphasis on “habits” — are the other. And the two must exist in balance.
Look over your budget before retirement, not after. Where and what do you spend on? What’s your projected cash inflow? Which cuts make sense, especially if they don’t impact your quality of life?
Review everything from subscriptions you stopped using long ago to exorbitant rates for wireless and mobile phone usage. Such moves can bolster your savings cushion when you’re ready to move ahead.
Having to prioritize expenses
Want to travel? It’s a delicious luxury but it’s incredibly expensive when you factor in food, lodging, flights and frequency of trips. Want to renovate your home or buy a seaside getaway? Interest rates on first and second mortgages these days are literally through the roof.
Want to stay healthy? Treadmills and gym memberships cost money — although certainly, prevention is worth avoiding a lengthy hospital stay.
Before you break open the bank and live it up, get a sense of your “nice to haves” versus your “need to haves.” If visiting family you miss comes far ahead of a two-week trip to Paris as priorities go, allow your wallet to follow your heart.
Needing to keep saving
Once it’s time to retire, many folks throw the savings plan out the window of the cruise ship or dream home. That’s the wrong way to go. Saving not only offers a buffer but also a means to make even more aspirations possible.
If you once put 10 percent of each paycheque aside, you could now aim for 10 percent of each Canadian Pension Plan check. Even just 5 percent is better than nothing, especially if you invest it wisely. Yes, the stock market is down these days, but as billionaire Warren Buffett advises, it’s also the ideal time to buy stocks that are undervalued and overly punished by nervous investors.
Having a CPP strategy
If you take CPP starting at age 60, you’ll miss out on additional funds you’d reap at a later retirement age.
If you start taking your payments before 65, you’ll lose out on 0.6 per cent each month, or 7.2 per cent a year — up to a maximum reduction of 36 per cent for those who start at 60. And if you wait past 65 , your payments will increase by 0.7 percent each month you hold off on drawing your pension, or 8.4 percent, per year. By 70, you’ll hit the maximum increase of 42 percent.
Most advisors would suggest you delay drawing CPP as long as possible to maximize your benefits. To be certain, eliminating debt and dealing with health issues might not make deferment possible. But otherwise, it’s ideal.
Requiring a professional’s input
Do you really know more than your doctor, lawyer or home contractor? Just as you take all those answers for granted, nothing replaces a capable financial adviser. Annual visits should be a given, especially in periods of market volatility.
Your adviser can identify spending problems, assist with your bucket list items and help you shoot for the retirement lifestyle of your dreams. Many also specialize in creating a detailed, three-dimensional view of your situation.
The only caveat here is that some charge fees for frequent, unnecessary trades or might try to sell you financial products you don’t need. It’s important to find an adviser who takes their fiduciary responsibility seriously — meaning that they’ll always put your best interests first.
Putting it all together
It’s understandable, but often regrettable, that new retirees feel an urgency to pack all their living into a do-it-now package. Not only does that make it harder to savor the moment — it also creates undue stress to do it all, no matter the cost or stress.
No retiree needs to live under that kind of pressure. Financially, emotionally, even spiritually: Pacing yourself makes room for gratitude and decreases the odds that you’ll wind up spent before your time.
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