Andres Valenzuela/The Globe and Mail
Katrina is 60 years old and single with no dependants.
“After a number of unexpected mid-career illnesses, including cancer, I became unable to work,” Katrina writes in an e-mail. She has been living on disability insurance for the past decade or so. Her income is about $38,000 a year, which will drop when she turns 65.
Katrina lives in a rent-controlled apartment in a university town where she pays $1,572 a month, including utilities. But she’s concerned about the neighbourhood and would like to move. “The worry that my neighbourhood is becoming unsafe keeps me up at night,” she writes, but renting in a better area would cost at least $500 a month more.
Her assets consist of $12,000 in a high-interest savings account – her emergency fund – and $8,400 in her tax-free savings account, held in guaranteed investment certificates (GICs). She hopes to build her emergency fund to $20,000, after which she would like to start investing in stocks in her TFSA. She is reading about investing and working to understand the financial markets.
Katrina may be in line for an inheritance in the future but it’s not certain.
Given her health issues, Katrina is “not confident she will have a healthy future,” so her goal is to live modestly “but not deny myself simple pleasures,” she writes. “I realize I am underfunded and it is distressing.”
For this Financial Facelift, Warren MacKenzie, an independent financial planner in Toronto, looks at Katrina’s situation. Mr. MacKenzie is a chartered professional accountant (CPA).
Get some free financial advice from The Globe and Mail by e-mailing [email protected] to be part of our Financial Facelift series. You don’t have to share your real name and our photographers will obscure your identity in one of our trademark Financial Facelift photos. Here are some recent facelifts for you to read. We’re especially keen to hear from Canadians worried about how the trade war with the U.S. will impact their ability to retire. Have you changed your investment strategy? Your retirement timeline? Your travel plans? Hopefully our advice can help you weather these stormy times and ensure a secure financial future.
U.S. bill to extend Canadian snowbirds’ visa-free stays could pose tax, financial hurdles, experts warn
A new bill in the U.S. appears to be a win for Canadian retirees who want to spend more time residing south of the border, writes retirement reporter Meera Raman, but experts warn it doesn’t address key tax and regulatory hurdles that come with longer stays.
The bipartisan Canadian Snowbird Act was introduced in the U.S. House of Representatives in late April. It proposes to extend how long Canadians 50 and older can spend in the U.S. without a visa – 240 days a year, up from 182 – so long as they own property in the U.S. or have a signed rental agreement for the duration of their stay.
While the bill has a brief mention that Canadians would retain their nonresident tax status, financial planners and lawyers say that would be harder to achieve in practice. Some also said it likely wouldn’t override the new 30-day registration requirements required for all “aliens” 14 years or older – including Canadians – without a visa, unless otherwise exempted.
Darren Coleman, senior portfolio manager with Coleman Wealth at Raymond James Ltd. in Oakville, Ont., said the bill would be “extremely appealing” to many of his snowbird clients. But, he added, the real concern is avoiding U.S. taxes.
Read the full article here.
The trade war helps explain why early retirement – which peaked in 1998 – is a dying concept
In case you missed it, peak early retirement happened in 1998, writes personal finance columnist Rob Carrick.
The average retirement age that year was 60.9 years, he notes, which compares with 65.3 in 2024. Carrick starts by looking at the trade war in documenting how this quiet demise of early retirement came to be.
The trade war, he says, is the latest in a series of financial shocks that includes the exploding of the tech bubble in 2000-01, the global financial crisis in 2008-09 and the pandemic in 2020. With financial markets acting erratically every few years, it’s natural to feel like you should push off your future retirement date to save more.
The trade war has caused some people to rethink their retirement plans, said Janice Holman, a principal at actuarial consultants Eckler Ltd.: “People who are ready to retire are probably going,” she said. “But those that are within, let’s say, a three-year window of retirement, are probably going to hold out for a while.”
It’s easy to put a negative spin on delayed retirement in a country where Freedom 55 is one of the all-time most memorable marketing slogans. Decades ago, an insurance company used the term to sell wealth management and financial planning services that would ostensibly allow people to retire early.
Retiring later makes perfect sense in today’s world, but the numbers documenting this trend still seem jarring.
Read Rob’s column here.
Looking for more personal finance opinion and advice? Sign up for the Carrick on Money newsletter here.
In case you missed it
Thinking about taking CPP early to avoid selling stocks at a loss? Proceed with caution
As markets whip back and forth and portfolios shrink, some Canadian retirees may be tempted to rethink plans to delay Canada Pension Plan or Quebec Pension Plan benefits, writes retirement reporter Meera Raman. The idea is simple: Start taking government payments sooner to reduce the need for withdrawals from your equity investments, giving them time to recover.
But financial planners say that starting CPP early should be a last resort – not a reaction to short-term market turbulence.
That’s because the longer you wait to take CPP, the more you get, and the increase is substantial. While you can start collecting as early as age 60, deferring until 70 boosts payments by 42 per cent.
“The increases by delaying are significant,” said Marlene Buxton, a Toronto-based certified financial planner and owner of Buxton Financial for Retirement. “They add up to a lot, especially for people who live longer.”
Yet most Canadians don’t wait. In fact, only about 4 per cent are expected to hold off until 70, according to a Globe analysis of data from the 2021 Actuarial Report on the CPP. For many, the choice is less about a financial strategy and more about necessity, Ms. Buxton said.
Read the full article here.
Use the Globe ‘CPP Benefits at 60 vs 65’ calculator to help you choose when you start collecting
How much money do you need to retire? As former engineers, we rely on math, not feelings
Americans think you need $1.25-million to retire. Canadians think you need $1.7-million. U.S. author and TV host Suze Orman thinks $5-million is barely enough – since private islands don’t buy themselves, they add.
Where do these numbers come from? According to Kristy Shen and Bryce Leung’s Opinion piece, some people take their yearly expenses and multiply it by their life expectancy. Others assume you’ll need 70 per cent of your pretax income in retirement.
The problem, they say, is that these methods don’t consider investment growth or customize for different spending levels. Some people are perfectly happy living in Thailand, spending $30,000 a year, while others want a lavish retirement income of $200,000 a year.
As former engineers, Shen and Leung prefer to make decisions with math, not feelings. So, they calculated their retirement number using the 4-per-cent rule.
So, what is the 4-per-cent rule? Basically, it’s how much you can withdraw annually in retirement to avoid portfolio depletion.
The history of this rule goes back to 1994, when it was created by a financial adviser named Bill Bengen. He simulated what would happen to a portfolio if you were to withdraw at different rates (3 per cent to 6 per cent) over different time periods, spanning the Great Depression, a World War and stagflation in the 1970s. He discovered that 4 per cent was the maximum you could safely withdraw, after accounting for inflation.
Read how diversification and flexibility, using engineering concepts, might enable you to withdraw even more here.
Kristy Shen and Bryce Leung retired in their 30s and are authors of the bestselling book Quit Like a Millionaire.
Retirement Q & A
Q: People may live longer in retirement than they do working. How do I plan accordingly?
We asked Rebekah Young, vice president and head of inclusion and resilience economics, Scotiabank Economics.
A: As Canadians face longer life expectancies and rising health care costs, strategic financial planning is more crucial than ever to ensure a comfortable retirement. And while longevity is increasing, many Canadians aren’t financially prepared.
A survey by the Canadian Institute of Actuaries (CIA) found that Canadians tend to underestimate their life expectancy by nearly four years. Research also shows that many underestimate their potential need for care after retirement. With a large population preferring to age in place – meaning staying at home – the cost of home care must be carefully considered, and decisions must be made with the risk of leaving something off the table.
How to plan? Creating a solid financial plan is essential – it should identify potential expenses and outline different scenarios based on life expectancy. For example, if someone plans for an average life expectancy of 85 versus 95, the financial strategies required to meet retirement goals and maintain cash flow will differ. Evaluating various scenarios allows for informed decision-making and better preparedness for the years ahead. Factor in activities, such as volunteer opportunities and extracurriculars like tennis, golf and club memberships. This approach is also beneficial when planning inheritance outcomes for dependants, family members or charities.
The key takeaway is that it’s never too late to establish a financial plan. Working with an adviser or financial planner can help assess current assets and build a roadmap for the future – one that allows you to make informed personal and health-related choices to support the life you want to live.
Interested in more stories about retirement? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. Read more here and sign up for our weekly Retirement newsletter.
