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Retirement savings

June 16, 2011

Retirement is no time to be hands-off with finances

Even after you retire, you still need to understand your finances well enough to make wise financial decisions.

I recently retired and these early days have gone pretty well. It’s definitely a big adjustment from the pace and social contact I’d experienced while working. That shouldn’t come as a surprise. But you may be surprised by some of the other experiences I’ve had.

First, a bit about me. Even while employed, I had quite a bit of knowledge about retirement issues, statistics and investing. I’d spent nearly my entire career in financial services marketing, much of it working on retirement topics and projects. Most recently, I was head of a financial services research department, so I’ve spent lots of time trying to get insights into what Boomers want from life. Also, unlike many people, I’ve always been really hands-on when it comes to my investments.

So, what might surprise you about my first months of retirement?

1. We’re not downsizing. We’re upsizing.

We just sold our downtown condo and will be moving into a new house. That may sound odd at our life stage, but for us, it’s the right thing to do. My wife has a green thumb and a keen interest in gardening. Plus, with a lot more time on my hands, I’m more able to be her beast of burden. So, we’ve sold the loft and will be moving into a new home with lots to do in the garden. There’ll also be more room for entertaining and for the kids to visit. We’ll miss some aspects of condo life, but not enough to remain in such a small home.

2. I opened my very first RRSP the day after I retired.

Yep, after! In my earning years, I always made far more income than my wife did. As a result, when I made RRSP contributions, I contributed the maximum to her spousal RRSP, so that when it came time to retire, (because she’d have no company pension and less Canada Pension Plan income than me) she’d be taxed at a lower rate on withdrawals. In our situation, a spousal RRSP made the most sense. I’d get the tax deduction for contributions, but the RRSP would grow in her name. But once I actually retired, I discovered a one-time opportunity. Just as my earnings were about to fall off a cliff, it finally made sense for me to contribute to my own RRSP (while still in a high tax bracket), so I could turn around and withdraw money from my RRSP next year, when my income is so small I’ll pay $0 tax on a withdrawal in my name. That’s a sweet deal (for me, although it may not be right for everyone).

3. This is no time for a hands-off approach to your finances.

I’m one of those lucky people that the majority of Canadians only get to read about. I’ve got a traditional defined benefit pension plan. In my case, it’s not a big pension, so it’s not the cornerstone of my retirement savings and it won’t provide the biggest chunk of my retirement income. But when I got my final pension statement in the mail telling me I had 90 days to choose between a one-time lump sum payment and a series of monthly payments, I had to make a fairly quick decision. I chose to convert it into the guaranteed lifetime income option that will provide me with guaranteed monthly payments for the rest of my life. Plus, the payments will be regularly adjusted for inflation. And if my wife outlives me, the cheques will continue on for the rest of her life. We both take comfort in knowing that those monthly payments are guaranteed and we’ll use them to cover much of our basic living expenses, such as food and shelter. In our situation, we actually don’t need the defined benefit pension money yet, so we’ve chosen to delay drawing the pension income.

The moral of the story is that no matter what financial advice or strong financial companies you have access to, you still need to understand your finances well enough to make the best financial decisions. I’m okay with that. In fact, I’m okay because of that.

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