Parents can start planning for retirement years before it happens, setting themselves up for the chance to retire early or simply live a retirement lifestyle
It’s important to start a retirement plan as soon as possible, not two years before you hope to live a retirement lifestyle. Photo by Mike Faille/National Post illustration files In an ongoing series, the Financial Post explores personal finance questions tied to life’s big milestones, from getting married to retirement.
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Retirement. It’s the goal we all dream of achieving one day. We’ll take up biking, travel more and live a life of leisure. Yet retirement might seem to some like a far off dream that will be a nightmare to reach.
The average age of retirement in Canada continues to rise, reaching 64.4 years of age last year, according to Statistics Canada. That’s a four-year increase since 2001, and is merely the average age of retirement. If you’re self-employed, that figure climbs even higher to 68 years of age.
Retiring early? Forget it, especially if you have kids to support. And support them you will, often far longer than your parents did in the past. It costs about $257,000 to raise a child in Canada over 18 years, according to a child cost calculator from The Measures of a Plan. That’s about $14,750 per year.
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Yet what happens when that huge financial burden moves out? It’s something parents can start planning for years before it happens, setting themselves up for the chance to retire early or simply live a retirement lifestyle. And, yes, such a lifestyle is a possibility, said Hamza Bahadurali, senior investment counsellor and portfolio manager at BMO Private Wealth.
“When there’s no longer kids at home, you have additional cash flow because you’re not funding their lifestyle or expenses, and you have more time on your hands,” he said. “And as you start looking at considering a retirement lifestyle, there are two things to consider: what are your goals and objectives … and what do I need financially to make this a reality?”
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When there’s no longer kids at home, you have additional cash flow
Hamza Bahadurali
Canadian parents may assume a retirement lifestyle will cost them too much. But Bahadurali said that’s why they should create a plan to see if it’s feasible. On the one hand, you can’t simply dive into such a lifestyle. On the other, if it’s something you’re interested in, don’t write it off either.
“The biggest recommendation would be to engage a financial planner or investment adviser to help you through this process,” he said. “When engaging a finance professional … they can really give you a 360-degree view of where you’re headed and what your future could look like.”
You’ll also need to prepare your kids, said Jeet Dhillon, senior portfolio manager for TD Wealth Private Investment Counsel, but make sure you’re working on a potential plan you can share with them.
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“If you’re living this kind of lifestyle, what kind of expenses will you have? What kind of income will you have?” she said. “We’ll run projections to see how you can achieve those goals.”
There are considerations to keep in mind on both sides of your finances, the costs and income, Dhillon and Bahadurali say. For example, you may choose to move or downsize in order to cut costs now that the kids have moved out, or explore a passion project to boost income. Almost 40 per cent of Canadian seniors between 65 and 69 report working part time in retirement, according to Statistics Canada.
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Article content However, you may also wish to help with your child’s education, a wedding or your future grandchildren, or simply want to have cash on hand for your estate one day.
Also keep in mind that your child may decide to move back in with you, whether that’s during or after post-secondary education, or because the lockdowns have left them no other option. In a study by Finder, about two million Canadians chose to move back home during the COVID-19 pandemic. That adds years of stress to a family’s finances.
“The world shut down and left people uncertain about their jobs, and there was a month or two where people were very worried,” Bahadurali said. “Having access to liquidity is very helpful. That can be setting aside savings in case something happens. A lot of people have set up tax-free savings accounts, which can be a source of an emergency fund. And another source is your registered retirement savings plan.”
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Article content We’ve certainly learned no one can ever plan for every outcome. But that shouldn’t keep Canadian parents from achieving their goals. It just means a solid plan is needed. If that affects your children, then you certainly need to bring them into the conversation, Dhillon said.
The world shut down and left people uncertain about their jobs
Hamza Bahadurali
“When it comes to preparing for retirement … it’s also teaching the kids independence and financial literacy. You want to make sure that when they do leave, they’ll be able to stand on their own two feet,” she said. “It could be a blindside if you didn’t think about it.”
That’s why it’s important to start a retirement plan as soon as possible, not two years before you hope to live a retirement lifestyle. Give yourself time to create a plan that involves your children for when they move out and that financial strain is lifted.
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Article content “Sometimes these conversations are difficult,” Dhillon said. “But the important thing is to have those lines of communication open with your financial adviser and your family members because, ultimately … you just want to make sure you’re happy and you’re comfortable.”
Should you want to retire in the next decade, not everything has to be nailed down now, but developing a plan will help guide you like a road map towards your goal.
“By engaging advisers, creating a wealth plan and a road map for themselves, and then revisiting this plan every few years to make sure you’re on track, that can be really beneficial,” Bahadurali said. “Thinking about a retirement lifestyle, whether you’re younger or still working or thinking about it after the kids leave, the most important thing is having a plan.”
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