Adjusting to life in retirement means retirees may have to adjust their spending habits. Some Canadians spend their lives saving and struggle to switch to a spending mindset, while others find themselves spending more than they bring in due to underestimated monthly expenses, unforeseen costs or overestimating their retirement income.
We asked six advisors what they recommend to their clients for managing retirement spending.
Financial coach, Ellements Financial Group, Cochrane, Alta.
For clients who are concerned about their nest egg dwindling in retirement, I recommend getting a part-time job. There are a lot of jobs in this new economy where you can pick and choose a few hours a week to work. Get out of the house, have some fun, socialize and be a part of something. You can still volunteer, but there are ways to make a difference and still have a job, because it’s so important to have that cushion.
Founder, Elleverity Wealth Management, Milton, Ont.
If at all possible, i recommend retiring in the spring. In retirement, it is common to feel like you’ve lost your identity; you’re trying to find yourself. What tends to happen in the winter is you spend more because you’re trying to figure out what you should do next (should I remodel the house?) because you are trying to compensate for that loss of identity. In the spring, there is that sense of rejuvenation and you feel clearer-headed in terms of looking at expenses and your spending.
Senior vice-president and portfolio manager, Coleman Wealth/Raymond James Ltd., Toronto
We have to deprogram the client. The clients who are retiring now — the baby boomers — were programmed by their parents and grandparents and [probably] have their same attitude about money. But what [boomers] don’t understand is that costs go up. So, instead of capital preservation, they need to think about income preservation. That’s the strategy.
One of the things we tell our clients is that getting to a comfortable retirement is only half of the story. The next is how
you stay comfortably retired. What we used to perceive to be old is not old anymore, and they need to understand they [could] live more vitally or expensively than they ever expected. So, we teach our clients not to worry about protecting the dollar, but what the dollar buys.
Senior vice-president, head of retirement, Mackenzie Investments, Winnipeg
Decumulation is so different from accumulation, so you have to have a proper withdrawal strategy. Your biggest expense in retirement is taxes, so it is important to have a plan that minimizes taxes and optimizes your net after-tax income. That’s the bottom line.
Understand how to minimize your taxes by asking questions such as “When should I take my CPP and OAS?” (See story, Timing is everything.) “Should I draw from registered or non-registered accounts?”Look at opportunities to split income if you are married, [consider] spousal loans, etc. All those kinds of things can help optimize your net after-tax income.
Founder and CEO of LifePlan Investments Inc.,
I really look at understanding clients’ needs and wants, and cash flow — what is happening now and what is going to happen. This past year, some people delayed their retirement, but others expedited it. So, understanding cash flow and having a budget is key.
Something I ask my clients who are approaching retirement is when they spend more money: Is it on weekdays or weekends? Because if it is on the weekend, they might need to realize that once they retire, every day is a weekend, and they need to account for that.
My clients who start volunteering after retirement tend to be OK because they have a similar lifestyle to before they retired; they are busy most days of the week and aren’t spending as much on activities. But I’ve found clients who haven’t had that opportunity are spending way more on a daily basis than they used to, especially coming out of Covid. So, my goal is to help them understand the reality of their new spending habits.
Financial advisor, Professional Investments Inc., Kingston, Ont.
This year has definitely helped people understand where they are spending their money and things they’ve learned to live without. It can be as simple as changing those small, little habits. Making coffee at home and taking it with you or not eating out at restaurants as much can really make a difference.
Clients [who did that] started having money in their bank account at the end of the month that they never used to have before. Clients have also asked to increase their monthly [investments] so the money is gone from their account, and they can’t spend it. What started out as forced savings made some of these clients realize they really don’t miss it.