When retirement was at age 65 and the average lifespan was only around 70, retirement was a well-earned respite after a lifetime of hard work.
But with increasing longevity and rising costs, a retirement lasting decades is more and more common – and running out of money is a real possibility.
When planning for retirement, it’s a good idea to make a budget so you’re confident you have enough. Creating that budget can be challenging, but there are a few often overlooked areas that must be taken into account.
Consider these common financial issues:
Inflation
Canadians saw a milestone in 2022, when the inflation rate peaked at 8.1% – a 40-year high.[1]
Although annual inflation usually isn’t this high, any inflation can be worrisome for seniors living on a fixed income. You built your budget to include a certain amount of money for basic necessities, and major swings in purchasing power lessen your ability to do that comfortably.
Generally, experts say to include 2-4% for annual inflation. This assumes some years will see more inflation than others, but they should average out over time. Working the average inflation into your budget will help you plan for the lean years.
Health Care
Canadians feel insulated from the runaway health care costs that Americans face. But provincial plans won’t cover everything. It’s more than likely that you’ll need prescription medications or paramedical services such as physiotherapy along your health journey that you’ll have to pay for.
Beyond that, older adults often need even greater resources to care for their health. A cancer diagnosis costs the Canadian public billions of dollars each year, and 30% of that cost is borne by the patients and their families.[2] A serious diagnosis like cancer or a chronic illness often require other supports – such as hiring a personal support worker or purchasing medical supplies like a shower seat – that also cost money. It may be a good idea to consider purchasing a Critical Illness policy to cover some of these extra expenses.
Housing Expenses
Roughly 20% of Canadian retirees are still paying off a mortgage.[3] This may not be an issue on its own, but whether you are paying off a mortgage or simply maintaining the house you own free and clear, housing can be expensive. And don’t think that downsizing to a condo removes that burden; condo fees can be significant as well, especially in major urban centres like Toronto.
Look carefully at the cost of maintaining your home and consider – honestly – whether you have the money to keep doing it. In many cases, it’s a good idea to downsize to something more manageable and more updated when you still have the money to make that choice.
Death of a Spouse
While the death of a loved one – especially the one you chose to share your life with – is always an emotional challenge, it can also have a financial impact as well. You may have been collecting a pension that will offer lesser benefits to a surviving spouse, or there may simply be a reduction in Old Age Security.
Whatever the impact, be sure your estate plan takes all of the potential changes into account. It’s a good idea to consider each spouse as a survivor separately. A life insurance policy is one form of protection, and it can be critical to ensuring the surviving spouse has enough of a nest egg to live out their remaining years in comfort.
Discuss these and other issues with your financial advisor as part of your retirement planning.
[1] Chartered Professional Accountants Canada, “ ‘No one expected this inflationary climate to last so long,’ ” November 28, 2022.
[2] MDPI, “The Economic Burden of Cancer in Canada from a Societal Perspective,” 2022.
[3] CBC, “ ‘The not-so-golden years’ – a quarter of retired Canadians in debt, survey suggests,” February 24, 2018.