102 – Planning Your Retirement in Canada

Wayne Kay 00:00
Welcome to the Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada.

 I’m Wayne Kay, and in today’s show, we’re going to talk about planning your retirement in Canada. What do you think? Are most people ready for retirement when it comes? How much do you think you need to actually save for your retirement?

We’re going to talk about some of the non financial things you need to be aware of as well. And is debt an issue when you’re planning your retirement? 

To help us with this, Bonnie Hooley joins me from LCTaylor Licensed Insolvency Trustee from Winnipeg. Hi there, Bonnie.

Bonnie Hooley 00:45
Hi, Wayne. It’s nice to be with you again.

Wayne Kay 00:47
Thank you very much for joining us. And I was looking forward to talking about this topic, retirement in Canada. I don’t know why.

I don’t know if I look old, but everybody always asks me, oh, are you retired? And I’m like, I’ve got a long way to go, so maybe I’ve lived a rough life.

Bonnie Hooley 01:02
It must be, because when they start asking, you’re just like, I either look extremely wealthy or I look really old.

Wayne Kay 01:08
I’m not quite sure which one it is. But planning for retirement in Canada, this is a big topic because some studies you look at and it’s totally nerve wracking, and I’m scared to death thinking, oh, my gosh, according to this study, I have to have $46 million in the bank.

Bonnie Hooley 01:27
It’s always scary not knowing the number. And one of the reasons I want to talk about this is CIBC recently did a survey, and they found that only 52% of people surveyed were confident with their retirement plan. So that means half of us are not confident. Of the 50% that are not confident about their retirement, 88% don’t have any formal plan for retirement.

So that means the majority of us are very unprepared for something that’s inevitable. Most of us are not planning to die young, so we need to be planning for our retirement. 

Now, there was also another study from the Canadians Preparation for Retirement CPR in 2020. Ironically, lower household incomes are more likely to be prepared for retirement. And the people that are at highest risk of being unprepared are people whose incomes are above the median.

And we could speculate all day about why that is, but the reality is we all need to be prepared for retirement. And it’s interesting that people who are careful with their money, people with lower income are generally more careful with their money, are the ones who are thinking about their retirement and realizing that I’m going to have to be ready for that as well.

Wayne Kay 02:46
I wonder how much pension plans play into this as well from workplaces, because some of them are very healthy.

Bonnie Hooley 02:55
Yes. And that’s probably in your 52% of people that feel prepared.

I bet you a large portion of those are people that have a pension plan, because people without a pension plan have to rely on a lot of other things, like the market being good in order for them to have a good retirement. 

Now, there are common mistakes that people make when thinking about their retirement. So they think, oh, I could just put this off. They think that the government’s going to look after me anyway, or my parents are going to die, so I’m going to get a great inheritance so I won’t need it. Oh, my or they think, I don’t need a plan, I’ll just wing it.

And you think that you’re going to have the physical ability to do what you do when you’re younger. So when you’re younger and your income drops, you have the ability to get a second job or do something to adjust. But as you age, you’re not always able to do the things you used to be able to do. And so you forget about that as part of your plan. You also forget about additional health care expenses that might come up as you age that aren’t always covered.

And then the other one that we probably all fear lately is inflation and thinking that, well, if I retire at this amount, that should be good. But as you age, that amount may no longer be good because of the inflation rate. You have to keep your goals in line with the increasing rate of inflation.

Wayne Kay 04:19
Well, how do you plan for that? How do you figure out how much you actually need for your retirement?

Bonnie Hooley 04:24
So how much you need and the reason numbers would be different depending where you look –  depends on when you’re going to retire. So if you’re going to work till you’re 80, then your plan is going to be very different from someone who wants freedom 55. You also have to think about – will you have debt when you retire? And so how much debt you’re planning to bring with you into retirement, if any, is going to depend on how much you’re going to need to retire. 

Also the kind of things you want to do, if you want to spend your retirement traveling, doing your hobbies, or you’re just happy to sit in an old folks home looking at a TV set, different amounts would be required for your retirement.

Also, where you want to live, do you want to stay in your home? Are you going to downsize and move to a smaller apartment? Do you want to live in different places in the world? And what kind of a lifestyle do you want when you retire? So the amount you need depends on your answer to those questions.

So you sort of have to start visualizing what I want my retirement to look like. If you wanted your retirement to look pretty much like your life is right now, then a general rule of thumb is that you would need to be able to retire so that you’d be able to draw an income of 70% of what you’re earning right now to maintain a current lifestyle that you have. 

But the reality is, as you age, you will not always be able to maintain the same lifestyle you have. So you could build that dwindling health into your plan, although some people are extremely healthy right up to the end, so it’s very hard to plan for that sort of thing.

Wayne Kay 06:07
So these would be kind of some of the non financial things that we’re going to look at when it comes to retirement. Are there some things that we’re missing when it comes to that?

Bonnie Hooley 06:17
Yes, the non financial things. So you definitely need to save money for your retirement. But things that people don’t think about that aren’t just the money is health insurance. So do you have health insurance that’s going to carry you through after you leave work?

Because that is going to affect your quality of life. Are you going to be caregiving for others? So aside from the financial aspect, you have to think about that sort of thing. Activities that you’ll be able to do or that you want to do.

 Life insurance, are you going to need it? How much are you going to need and what will you need it for? If you’re going to have dependents, you may need it for them. If you’re not going to have dependence and your funeral expenses are covered, you may not need it. 

So that also brings us into estate planning and wills. Aside from the financial aspects of retirement, you have to think about those sorts of physical things as well.

Wayne Kay 07:15
There’s a lot here that we’re going to probably miss. No wonder this is why Canadians do totally say, well, I’m going to just wing it because it’s almost too complicated.

Bonnie Hooley 07:27
It almost is. And I love finances and I still went to a professional to get advice and guidance with regard to it. And so you don’t even know, where do I get started on something like this?

I think that the key is not to put it off, but to at least start thinking. It’s not like you’re planning your death, you’re planning your retirement. So start thinking about what I want my retirement to look like? Just have a discussion with whoever you plan on retiring with. Am I planning on traveling the world?

Am I going to work part time because I don’t want to give up my job? I love it. Just starting to think about visualizing your retirement. Am I going to be doing volunteer work and that sort of thing? Am I going to be waiting to retire until they put me in the care home, or am I going to be doing something sooner?

Just things to think about when you’re planning your retirement. And then once you sort of start getting a picture about that, then the next step would be to assess where you are right now. Like, do you have a lot of time to prepare? 

If you’re 80, you may not have a lot of time to start preparing for your retirement, so you need a plan yesterday. But if you’re 40, you can start putting your plan together and you’ve got a lot more time to work on that plan and to make it a reality for you.

So just start small, little steps that you can take to get there. And as you near retirement, I strongly suggest that you start to adjust your lifestyle to plan for that. 

One of the things, and I may have mentioned this on another podcast, is when my husband was going to retire, even though he was going to have a pension, the income obviously drops and I was as prepared as I thought I would be. So a year or so before retirement, we took his income and adjusted it so that we were living off what he would get during his pension and then we could see how comfortably we can manage on the retirement that’s coming. And are there things that we are forgetting about or we hadn’t planned for or we need to save for while we had the time to do it before we were jumping into retirement with both feet.

And I strongly recommend also that part of your plan be that you clear up your debt before retirement. Retirement is hard enough and there are so many things that hit you that you can do your best to plan for. But trying to do that and manage with debt is always extremely hard, particularly from where I stand. When I see retired people with debt, it’s always an excessive hardship on them, even more so than when you’re younger. And then other things to think about is, does my company have a pension? And are there people I’m going to have to support? 

So those are the places to start. But once you’re thinking about this and you’ve got a plan and you’ve got some general ideas, don’t try to wing it on your own. Talk to an expert and get recommendations and don’t wait until you’re ready to retire. Talk to an expert sooner than later. 

Just like, you know, when you’re in debt, the sooner you talk to somebody, the more options that are available to you and the better your retirement is going to look if you plan way ahead than if you wait till the last minute.

Wayne Kay 10:55
It’s very wise to do that, even when you’re well ahead of the game. I’ve got many years until I have to retire, but still I was going to talk to an accountant on how do you pull out RRSPs without getting taxed to death? Are there some strategies that I should be looking at beforehand, even though I have a ways to go? So I think the more prepared, the more questions you ask, the better you’ll be.

Bonnie Hooley 11:20
Exactly. Yes. Because there’s things that you could be doing now that will make your retirement so much better. And you’ll always be looking back and wishing and saying hindsight. So always better to plan.

Wayne Kay 11:33
We just had that topic, we had that discussion this morning. A friend and I were talking, and I talk about this all the time on this show, but I love playing with the compound interest calculator. I’m doing some changes in my portfolios and so I look ahead. So I sent it to her and said, here, look at this and put your numbers in because if you need to make some adjustments, you better do it now. Don’t wait until it’s too late.

She put her numbers into this thing and then she was like, why didn’t somebody else show me this earlier? I should have done this ten years ago. And it’s just once again, we don’t think about it because we’re busy doing life.

Bonnie Hooley 12:14
Yes. And then the compound interest thing is such an interesting thing because part of our financial counseling that we offer for people that have financial trouble is long term financial planning.

And we do show that if you started at 20 and put a small amount away, $200 a month with compound interest, you would be a millionaire when you retire. If someone shows you that you’re like, well, I can afford that, I spend that much on coffee. Right? But if nobody shows you or points it out or talks to you about it, you lose out on so much that you could be benefiting from.

Wayne Kay 12:51
Do you find that people with debts will end up in your offices, the retirees that are in debt? Or is that a wrong assumption, because I don’t want to assume anything. But you did mention that a lot of retirees, you lose your income, it drops a fair amount, and all of a sudden you’re still having the same debt and you’re still paying for all the house problems that are there that we have to pay for new furnace, new whatever. Does that cause hardships?

Bonnie Hooley 13:23
It does cause hardships. And also, not having talked to someone ahead of time, there’s things they don’t think about. So, for example, they get their CPP, old age security, and then at the end of the year, they get a massive tax bill and you’re like, what? And it’s because they don’t take enough tax off.

And so now you’ve got to go through the next year living on very limited income, trying to catch up on your taxes. And then you’ve got medical expenses that not everything is covered under medical care. And so then people will even start using credit cards just to maintain a very reasonable standard of living.

Had they known from the beginning that they were going to have to save some offer taxes, then they would have just been slightly more frugal and done that. So just little things like that can push people into debt while they are retired.

Wayne Kay 14:20
Brilliant. Now, if somebody is listening to this and they’re like, okay, Bonnie, please tell me all the things I need to do. Where do I start? What’s your advice?

Bonnie Hooley 14:31
Do something. That’s my advice. Just something. So we’ve talked about a few things to think about, talking to an expert, planning what you’d like to do. Even if all you’re doing is visualizing, just don’t put it off. Just say today, what am I doing today to start to prepare for my retirement? Even if it’s just thinking about it, just do something.

Wayne Kay 14:54
All right. Terrific advice. Anything else we need to know?

Bonnie Hooley 14:58
No, that should do it. You’re all going to retire and be really happy and be thinking about me and being thankful. Just kidding.

Wayne Kay 15:05
I love it. You’re always a pleasure, Bonnie. Thanks very much for being on the show.

Bonnie Hooley 15:09
All right. Nice chatting with you, Wayne.

Wayne Kay 15:11
Well, my guest today, Bonnie Hooley. You can learn more or schedule a free consultation with LCTaylor Licensed Insolvency Trustee by going to the website LCTaylor.com.

 And that is it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out debtmatters.ca. Thanks very much for listening.