Retirement… your plan may be well-thought out, but there could always be an unforeseen event that could derail your journey. You could live a lot longer than you anticipate, have more financial health problems or suffer from a rise in inflation. But, there are certain measures you can take to ensure your money outlasts you.
Know when to Downsize
Retirees who did not save enough and want to live in their home may need to consider their reality. If it costs more to stay in your home than you can afford, you may need to be honest with yourself and make the hard decision to downsize. Your home is an asset, but if it’s too much, it could become a liability and ultimately a financial burden. An overly large home isn’t a necessity in retirement, but money is.
Helping Your Children Way Too Often
All parents want to help their children, but many of them give them way too much money too quickly. This can hurt their only financial affairs. It’s a good idea to set up an estate that you can dip into when needed, but should you not, your children can benefit later on.
If you spend an excessive amount of money in the early part of your retirement, you won’t have enough to live on as you age. Be cautious of focusing all of your money into saving vehicles like GICs and cash. Whilst it may seem like the safest option, you may be missing out on opportunities and even lose money after you pay taxes and factor in inflation. This, along with overspending, means you’ll need to make some major lifestyle choices if you don’t want to suffer financial ruin.
Retirement is an uncertainty in life, but what you do to prepare for it can make or break you in the grand scheme of things. Don’t make the mistakes that will affect how good you could live during retirement.
With the summer now officially over, I thought it would be a good idea to get back to the basics of saving and compile a list of techniques that, when used diligently over time, will reward your wallet and bank account.
The first and most important thing is to determine what you consider necessary. What is most sought after? Do you want to eat out and spend time with friends? Would you rather buy a vehicle or own a home? Whatever is essential to your quality of life, focus on them and cut out any unnecessary purchases that don’t fulfill you.
Work Together on Finances
When it comes to household finances, both parties should be involved in the process. In many cases, one person is left to do it all, totally absolving the other from any responsibility. This can lead to problems when things are not monitored closely, or the person holding that responsibility can feel resentful about having to take care of it all. Collaborating and regularly talking about finances can alleviate stress in a relationship, stabilizing any bad spending habits.
Early Retirement Isn’t Likely
Many people would love to retire early from work which is attainable, but you need to save for a long time and make some sacrifices. Make sure to add 10 or more years into your working life and realize that the more money you add to the savings, the less years you’ll spend using it to live.
Avoid Using Credit for Back-Up Plans
Credit cards and a line of credit should only be used in cases of emergencies. It may help you through when you’ve lost your job and haven’t gotten another, but you’re still going to have to pay that money back.
Slowly Pay Back Your Debt
When tackling your debt, do it steadily. You’re going to be faced with challenges, but make sure the goal is something you can actually reach.
If you’ve contemplated investing at some point, you may have considered what kind of advisor would be the right fit for you – a human advisor or a robo-advisor. Well, to shed some light on the subject, here are some noteworthy differences between the two.
A robo-advisor is a technology company that uses a specialized algorithm to invest your money into various assets that are appropriate for you based on four areas – goals, risk tolerance, timeline and constraints. In order to determine suitability, they will regularly rebalance the money to carry out the target mix of bonds and stocks.
Robo-advisors normally work with exchange-traded funds (ETFs).
In a conventional financial institution, usually you talk to an advisor before they invest your money. They ask you about the risk tolerance, goals, constraints and timelines. They provide you with advice about the investments (asset mix). They’ll invest the money in mutual funds. As time goes on, you and the advisor meet to talk about your life’s needs, the market changes and the most effective way to appropriate your investments.
What Kinds Of Fees Would You Expect?
An actual financial advisor charge is dependent upon the financial institution and the service received. At the lowest level, you pay for the invested products such as mutual funds, which are charged as a fee known as Management Expense Ratio (MER). These fees can vary – from under two percent (ideal) to more than two percent (terrible). Ask about the fees before you do any kind of investing to ensure you don’t pay more than you have to.
Robo-advisors normally have just two fees – the ETF’s and MER fees (usually range from 0.05 to 0.5 percent) and an additional fee for the robo-advisor’s service. This can be a monthly set fee or a percentage fee – dependent upon your chosen robo-advisor.
Robo-advisor fees tend to be lower than the traditional human advisor. This is especially true if you’re not investing a lot into assets. An advantage in using a robo-advisor over a human one is the minute sum of fees you pay to start the investment process. However, people generally find that building a rapport/level of comfort with their human advisor gives them a level of trust that they wouldn’t otherwise get with a robo-advisor which many feel warrants the fee.
It is a parent’s responsibility and obligation to provide financial stability to their child throughout their upbringing and ensure they can become financially independent. However, a parent must know when it is time to stop the bankroll. Here are four tips to help set them up financially:
Setting Up a TFSA Account
One of the best things a parent can do for their child is to set up a TFSA account. Parents can encourage their children to fund the TFSA by making a matching contribution. So, if a child contributes $100 to the fund, the parents will also contribute $100. This process can quickly generate growth within the account once diligently supplemented.
Don’t Purchase “Extras”
Of course, the generosity of parents should stop at world cruises, luxury cars and the most recent tech gadgets – these are things the children should be purchasing themselves. They need to understand debt just as much as they do wealth.
Teach Them about Credit Cards
Parents should teach their children about credit cards. Instead of dealing with the compounding interest on an outstanding balance, they need to impress upon them the importance of paying the card off before the balance is due, so as to not rack up unnecessary interest charges.
Educate them on RESP’s
One of the first steps parents should take when having a child is to set up a Registered Education Savings Plan. This can be an effective way of alleviating the financial burden of sending a child through their education and a great way of protecting the parents’ retirement nest egg. Ensuring the RESP is consistently supplemented by the parents and the child will overtime allow the child attend a higher education. Teaching a child the importance of contributing to the RESP and why they’re doing it will hopefully lead to a greater sum of money when it is needed.
Little decisions in the day-to-day can go a long way. We choose things by impulse, emotion and sometimes by ignorance. But some of these choices can be very costly. To help keep an honest perspective, here are four decisions that can lead to stronger financial independence.
1. Marry the Right Person
You could lose half of your assets in just a few hours. That’s the worse-case scenario in a tenuous marriage. People often don’t think of financial compatibility when considering marriage, but the truth is it’s just as important as any other factor. Money mind-set can be a big predictor of relationship success. Many marriages have torn apart as a result of conflicting financial beliefs and habits.
2. Watch Your Costs
Fixed costs are very easy to lose track of. From a gym membership, to a cell phone plan, to a subscription of your favourite magazine – it all adds up. The key is to stay ahead of all these and find those unnecessary expenses. When is the last time you have been to the gym? Do you really use four gigs of data? And, who really reads magazines these days? The point is there are always areas to trim and all it takes is a little attention and awareness.
3. Tune Out the Noise
Given the volatility in the market there is a reason every day to pull out. But more often than not, these knee-jerk reactions usually prove to be very costly. Try to turn out the noise and think long-term. Also think about low-cost index funds as the investment of choice.
4. Don’t Rush for Government Benefits
The longer you can put off collecting government benefits the better. We as Canadians are living longer than ever.
Research has shown that more than half of Canadians aged 50 and older have collided with unexpected events that have impacted their finances and/or retirement plans. Whether you’re planning on selling your home or staying, here are four ways to tap into your home for added security during retirement.
1. Sell and Rent
An easy way to get money out of your home is to sell it and put the cash into an investment that will boost your yearly income. But before you do so, factor in expenses (real estate agent fees, lawyer fees, moving costs, etc.). It’s also important to decide on the volume of risk you’re willing to take in investing.
2. Sell and Downsize
Another effective way to boost your retirement security is to sell and downsize — it’s easy logic. However keep in mind that your needs might change as you age. For example, you might decide it’s absolutely necessary to avoid homes with a steep set of stairs. It’s imperative that you think strategically about your next destination.
3. Become a Landlord
Ever thought of converting a portion of your home into an apartment? Well, doing so can increase your monthly income substantially. However you need to decide you’re cut out to be a landlord – that means being available all hours of the day and being able to find the right tenant.
4. Get a Reverse Mortgage
This is a mortgage that is given to people who own property at 55 years or older. The borrower doesn’t pay back the loan until he or she sells the home.The loan is tax free and any interest you pay is deductible. But there are some drawbacks to this approach – you have to pay interest on the loan and the penalties can be heavy if you decide to cancel.