Money in your 60s: What to consider as you make real plans to retire and use your retirement income
You started from the bottom, now it's time to enjoy yourself.
By the time we get to our 60s, most of us have spent the better part of 40 years working and saving. Phew! Now comes the most relaxing time in your life, we hope, when you can finally start to enjoy all the fruits of your savings. That in itself requires some knowhow, however. If you were lucky enough to have a work pension, if you saved money saved in your RRSP and other investments, now is the time to plan for when and how to wisely extract, transfer and use that as income. It's time to start making some real plans about what you want your retirement to look like.
Know when you should retire
Not everyone retires at age 65. By taking a look at your work pension, see what your monthly income would be if you decided to leave work now. How much more would you get if you waited until 65 to retire? It's important to know that Old Age Security (OAS) and Canada Pension Plan (unless you take that early) don't start until you turn 65 so make sure you are calculating your income carefully if you are taking early retirement.
Make your retirement income tax efficient
Government benefits like OAS start to get clawed back past a certain income threshold. For 2016, that number was $73,756; after which benefits start to decline to the point of nonexistence at an income greater than $119,400. Make sure you are setting up a withdrawal plan that will keep as much OAS in your pocket as possible. If you are able to save, don't forget to use your Tax Free Saving Account, as the money you withdraw from there is not added to your income tax. Also, you can voluntarily defer OAS for up to 5 years. This will result in a higher benefit when you do start to receive it. Talk to an accountant to make sure you are managing your investments, income and benefits, in the most efficient way possible.
Move money to safety
The time where you are going to start spending your retirement savings is getting closer. Make sure you have at least five years of expenses saved in the safest of investments. However, remember retirement will hopefully last for many decades, so leaving some money in higher risk investments is ok, as long as you don't plan to use it for at least 20 years. The key at this age is having the best asset mix. So enough money in safe investments to spend now and the rest in slightly riskier investments that you don't need until later.
Get a handle on what your retirement income will afford you
Based on what your new income will look like, from your various sources, what will you be getting each month? Can you afford your life? If you are feeling stretched, think of ways you can cut back to enjoy all the things you want to do. Consider downsizing or moving to a less expensive city. Consider getting rid of one car if you are a two-car couple. Does it make sense to take longer trips but live more frugally? For example renting a home for 3 months in Arizona vs taking a 2 week Caribbean holiday. You have options!
Take advice from older retirees
One of you best resources at this stage in your life are your slightly older friends. They are living through what you will be experience in 5-10 years' time. Ask them about what they wish they had done with their finances and if there are any mistakes they made you could easily avoid. Make sure you talk to people who are living a lifestyle you admire and can afford — talking to seniors who are much wealthier you may be setting yourself up for financial failure. Here, you're doing what you can to plan better for the unexpected.