This is part four of five of the series looking at personal finances in your 20’s, 30’s, 40’s, 50’s, and 60’s. It is your last decade before the home stretch, and you may or may not have already hit the home stretch.
If you have already retired, congratulations! Freedom 55 is a dream for many. This is a time when you are able to travel without worrying too much about your knees or health. Freedom in this decade entails working because you enjoy it, not because you have to.
If Freedom 55 is not the case for you, don’t worry, there are still things that you can do to ensure that you can retire at the age of 65 should you want to. Of course, if you don’t see yourself retiring at age 65, you don’t have to now. In 2008, the government of British Columbia got rid of mandatory retirement at the age of 65. All the other provinces and territories except for New Brunswick have no laws or rules against working past the age of 65. In New Brunswick, the employer is allowed to enforce retirement under the terms and conditions of any retirement or pension plan.
Evaluate Whether You Can Retire at Your Goal Age
In your 50’s, it is very important to evaluate whether the goal age of retirement is … well… is achievable. Has your hard work paid off? Or do you need to bust your butt to start saving enough for a decent retirement without having to resort to eating tea and toast on a daily basis as a retiree?
Many describe the time in your 50’s as analogous to nearing the end of a marathon. Your hard work has paid off and you can see the light at the end of the tunnel and yet at the same time, many “hit a wall” because they are feeling fatigued from the efforts of working so hard to save for retirement.
If You Haven’t Started Yet…
If you haven’t started saving for your retirement yet and you have paid off your mortgage, now you have much more money to allocate to your retirement savings. The money that you previously paid towards your mortgage should be paid towards your retirement savings…and then some.
Make sure you invest in fixed income assets. As previously mentioned in Personal Finances in Your 30’s, you should have about 50-60% of your portfolio in fixed income (guaranteed income certificates or other safe investments). Many boomers were hit hard with the economic meltdown in 2009 and many saw their hard earned savings wiped away and had to re-evaluate their retirement plans.
Pay Off Non-Mortgage Debt
In your 50’s, the mortgage should likely be paid off, but to adequately prepare yourself for retirement (where you estimate needing 70% of your current income during retirement), you should ensure that any other debts are paid off. This is especially true for credit card debt because of the high interest rates these entail. The Financial Consumer Agency of Canada has a great tool on calculating credit card debt payments (you can pick various scenarios like paying only the minimum payment etc.).
Decide whether you want early CPP Payments
In your 50’s, you may start thinking about whether you want to apply for your CPP payments (Canada Pension Plan) earlier than age 65. The Canadian Retirement Income Calculator can help you calculate how much you will receive in retirement income from the government, including Canadian Pension Plan and Old Age Security (for low income seniors) payments. Don’t forget to factor in your employer contributions and your own personal savings.
Calculate your Withdrawal Rate
According to the Trinity Study, the rule of thumb that many certified financial planners recommend is withdrawing 3-4% of your portfolio per year in retirement, adjusted for inflation. Withdrawing 4% is a safe number as it has been calculated to not exhaust the stocks and bonds in your portfolio (e.g. every retiree’s worst nightmare, which is running out of money during retirement). As we know, older investors are more vulnerable to the downs of the stock market compared to younger investors.
Bargainmoosers, do you have tips for other Bargainmoosers in their 50’s?
(photo credit: Tax Credits)