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Retirement income: sustaining your finances in retirement

Retirement income – if you’re 60+ in Canada, this topic is probably top-of-mind. And we hope it’s on your radar if you’re younger. It’s never too early to set yourself up for financial success in retirement.

RTOERO members and guests had the opportunity to hear from David Ashton, a freelance journalist who writes about retirement, investments and personal finance, as part of our Focus webinar series. David’s presentation about sustaining your finances throughout your retirement gave essential advice to help you set yourself up for retirement income success. This article is a summary of the tips from the webinar.

Tips to life-proof your retirement income

Any advice you receive about finance should be tailored to your circumstance. As you review these tips and others, consider how this applies to you and your situation. You may have different medical or caregiver responsibilities, so you need access to more money more efficiently. You may have particular goals you’re working towards or charitable causes you want to support. There’s no one-size-fits-all approach to retirement finances.

Coping with current investing challenges

We live in a changing world with various circumstances outside our control. We’ve dealt with recent unforeseen challenges, such as the global pandemic and rising inflation rates. While you don’t know what will happen in the future, you can set yourself up to cope with current and future challenges, using these timeless tips.

Maintain the right mix of stocks and fixed income

A balanced portfolio is the key to managing through the situations you can’t control, like the economy, or life circumstances. In retirement, ideally, you have a mix of stocks and fixed income (e.g. bonds, GICs). Your stocks offer greater returns but are riskier. The fixed income helps you through downturns, while also providing some return.

Balancing a retirement investment portfolio based on your pension and savings

The balance of your portfolio depends on your pension situation:

  • If you don’t have a defined benefit plan, 50-60% stocks is a good focus for most retirees.
  • If you have a sizeable defined benefit pension and little savings, keep savings accessible, so you have access to it.
  • If you have a sizeable defined benefit pension and ample savings, you can justify more than 60 per cent stocks depending on your risk tolerance.

 Structure finances to generate steady cash flow

Structuring finances for good cash flow is straightforward with a defined benefit pension – that’s what they do. When you think about cash flow in retirement, think of two layers:

  • Base layer – cash flow generated by government pension (CPP/QPP, OAS) and employer-defined benefit pension
  • Top layer – cash flow drawn from your investment portfolio

Together, the layers provide for your total spending needs.

How to draw from portfolio safely

If you’re heavily dependent on your portfolio for your cash flow, you want to avoid being forced to sell stocks at depressed prices. It could deplete your portfolio, which means it doesn’t rebound as stock prices recover. Here are two strategies to help you sustain your portfolio:

Bucket approach

Divides portfolio into two buckets

  1. Safe bucket – investment grade short-term bonds
  2. Risky bucket – where you put your stocks

During market downturns, take withdrawals from safe bucket. When the market recovers, you can take withdrawals from either.

Reliable dividend investing

Invest in blue-chip stocks that pay reliable dividends, and dividends grow over time.

A blue-chip stock is a large, well-known company with a great reputation.

Have ready-access money for extraordinary needs

Life circumstances can affect the need for ready-access money. Have at least three to six months, but ideally, a year of spending accessible in a high-interest savings account. (Don’t tie it up in stocks, RRSPs or regular GICs.) Short-term investment-grade bonds in your portfolio can serve double duty as an emergency fund.

Address risk of running short of money late in life

The goal is to create a plan and portfolio that covers your spending needs throughout your lifespan and protects you should you need additional care as you age. A sustainable withdrawal rate is 4 per cent of the initial portfolio yearly, plus subsequent inflation adjustments if you retire at 65.

Unfortunately, the high costs of elder care across Canada can cause you to run short. Proactively, you can take action to maintain your wellness across your lifespan. And also take steps to be prepared to deal with your care needs as they arise.

Options for elder care in Canada

  • Aging in place with the support of in-home care – there’s currently limited government support for home care, but many advocates, including RTOERO, are working to change this. Aging in place is a popular option as most older adults report that they would like to stay in their homes, and it’s a more cost-effective solution for society.

Read more: Age in place: Make your home and routines safe for healthy aging

  • Retirement homes – retirement residences are private-pay with no government support.
  • Long-term care – Long-term care is government-supported, but the system has extensive shortcomings that have been highlighted and exasperated by the pandemic, including wait lists.

A modest amount of money late in life can help with:

  • Visits from a care worker for extra help
  • Private room in public long-term care (in Ontario)
  • Prolonged stay in private assisted living

Backup options to cover your care needs:

  • Tap into the equity in your home, e.g. downsize to a smaller home or sell the home to pay for a retirement home.
  • For renters, aim to have more money in your nest egg.

Get value from financial advice

Financial advice can help you build a plan and portfolio to meet your individual needs. Look for fee-for-service financial planners, as they’re typically lower cost. Mutual fund advisors are a main investment advice option for small investors, but the quality of advice can vary, and fees are relatively high.

Other investment advice options:

  • Advice through your credit union or bank
  • Low-fee mutual fund providers
  • Robo-advisors – need comfort with digital processes, can access human support over the phone and by email
  • Do-it-yourself investing – need knowledge, confidence, desire and time

Read more: How to choose a financial planner

Recognize the systemic nature of financial well-being and your role in it

While wealth isn’t directly correlated to happiness or well-being, it certainly impacts your personal agency and ability to age well. Financial well-being in retirement is tied to decisions you make, as well as the circumstances that happen to you or that you’ve dealt with across your lifetime.

Do your best to safeguard yourself against economic changes and future care needs. Try to tap into existing services in your community to help you stay connected and age well. Also, consider ways to use your relative privilege to help others through volunteering your time and expertise or donating to support causes.

It’s also more important than ever to advocate for better political representation and focus on healthy, active aging. Learn more about our political advocacy efforts on behalf of RTOERO members and all Canadians for critical policy improvements to address urgent needs and create a more secure and compassionate future for everyone.

Access to presentations with expert speakers is one of the benefits of RTOERO membership. Recordings of past presentations are available on RTOERO Learning, our members-only learning platform.

Do you work in any role in the education sector in Canada? You’re eligible for membership, and it’s free until you retire. Sign up today.