How retirees can overcome “irrational” savings and enjoy their money. Additionally, minimizing the tax burden through proactive estate planning

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Some seniors are extremely frugal in retirement, limiting their spending on goods and services they can afford that will make their lives easier and more enjoyable.

The so-called “retirement consumption gap” often stems from an inability to switch off the savings mindset and the fear of running out of money, especially as the cost of living rises and people live longer.

The 2021 US report showed that the number of households able to fund their own retirement is rising sharply to 48 percent from 18 percent in the first decade of retirement due to reduced spending. However, almost a quarter of Canadian retirees described their lifestyle as frugal, according to a 2019 Sun Life Financial Inc. survey.

Some advisers say their job is to help clients with a solid financial plan feel good about saving for retirement without having to cut corners.

“Frugality is a character trait,” says Rona Birenbaum, a certified financial planner (CFP) and founder of Caring for Clients in Toronto. “People who have always been thrifty can’t just turn off the switch.”

He notes that some affluent clients check with him before making major purchases, such as buying a new car or renovating a bathroom.

“They’re not looking for approval, they’re looking for approval. They are responsible,” says Ms. Birenbaum.

Advisers can also work with clients to make sure they don’t make “irrational savings decisions,” he adds, such as canceling a long-awaited trip to visit grandchildren that would make their lives more fulfilling.

Read the full article here.

How to know if your retirement savings are on track?

In a recent Charting Retirement article, Frederic Vetse, former chief actuary at Morneau Scheppel and author of Retirement Income for Life, discusses how to know if you’re saving enough to get here for retirement.

Can Leonard, 68, afford to retire in a few years and spend time where “the weather is nice?”

At 68, Leonard plans to work a few more years at his $83,000-a-year transportation job, but he wonders if he can afford to retire at 75. He has some savings, a house in Vancouver with a mortgage and a second home. the property he rents out to a relative to cover expenses.

Leonard is single again with three grown children. He lives modestly on his own account.

“I don’t buy clothes unless I need them,” Leonard writes in an email. “As for groceries, I don’t spend that much — sometimes $200 a month, sometimes more,” she adds. Since he often travels for work, some of his expenses, including food, are covered by his employer.

“I want to continue working as long as I’m healthy and able to earn an income to cover personal expenses,” Leonard writes. “I would like to get a new car that is reliable and easy on fuel.” He plans to downsize to a small summer house or apartment before he retires, but is open to other options, such as renting.

“When I retire, I’d like to spend three to five months somewhere that’s affordable and fun,” Leonard adds. He wonders if he will have enough money to maintain his lifestyle when he is out of a job. His retirement spending goal is $60,000 a year after taxes.

“Will there be any money left to provide any help to my children when I pass?”

In the latest Financial Facelift, Anita Bruinsman, CFA and founder of Clarity Personal Finance in Toronto, looks at Leonard’s situation.

Want a free financial makeover? El finfacelift@gmail.com.

In case you missed it

How Proactive Estate Planning Can Help Minimize Your Loved Ones’ Tax Burden

Most people don’t want to think about their own death, let alone talk about it. This means most Canadians lack the knowledge to engage with their own mortality, a new study says.

An RBC survey of 1,501 Canadians conducted during the last week of March found a general lack of awareness of wills and estate planning. For example, 61 percent are unfamiliar with things like probate (the legal process for a court to validate a will and distribute assets), while 57 percent were unaware that estate taxes can be reduced through insurance policy benefits.

This is surprising given that the vast majority of Canadians want to avoid unnecessary property fees and minimize out-of-pocket costs. “But they don’t know the products that can help them achieve that,” says Selene Su, director of wealth products at RBC Insurance.

Estate planning helps manage and distribute assets after death, including who gets your property, when and how it will be transferred. “It’s about sitting down and getting your finances in order to minimize taxes and fees,” Ms Su said.

To do this, you need to evaluate which financial products can help maximize what your loved ones receive and minimize the tax burden, including contract fees; tax levied by the government on a deceased person’s will, which can be as low as 1.5 per cent in Ontario. as 0.05 percent in Alberta.

Read the full article here.

There is a pension crisis in France. Why not Canada?

There is a pension crisis in France. On Thursday, ahead of the ruling by the country’s constitutional court, protesters piled up piles of trash in front of the building. It’s the latest memorable visual from weeks of marches, protests and strikes that have swept the country since President Emmanuel Macron announced plans to raise the retirement age.

The United States is also experiencing a pension crisis, albeit quietly and slowly. Republicans have long advocated averting disaster by cutting, gutting or privatizing the national pension program known as Social Security; Democrats are proposing the opposite, namely higher benefits paid for by higher premiums. American politics being what it is, there is no consensus, so Social Security continues its gentle way down the iceberg. The Congressional Budget Office says that unless premiums are raised, the deficit is not increased or taxpayers pay, pension benefits are set to decline by 23 percent by 2033.

And Canada? Canada does not have a pension crisis. Maybe you didn’t notice. “No crisis expected to go on indefinitely, experts say” is not a headline we tend to put on the front page.

Read the full article here.

Pension question and answer

Question. I don’t have any family members or anyone else to execute my will, so I have to use a professional executor. I am thinking of signing up with a bank or trust company, but it seems that the fees charged are based on the gross amount of assets before death, before income tax, probate fees and all debts are deducted. Would it make more sense to reduce your own assets, instead signing up for a charitable annuity with a charity that plans to leave money by will?

We asked Isabel Cadot, Market Leader, Scotiatrust, Southern Prairies, to answer this one.

Depending on the province, an executor may be entitled to fees of up to 5 percent of the gross value of the estate, whether they are a professional executor or a family member or friend. There are advantages to using trust companies, including continuity of service and their essential institutional knowledge to manage the estate efficiently and in accordance with legal, tax and accounting rules.

Charitable annuities are typically offered by nonprofit organizations. Some donor-advised funds may also contribute to charitable projects with charitable annuities. They are sold as a contract between you and a nonprofit in which you make a significant irrevocable gift of your assets in exchange for a tax deduction and a lifetime income stream. An annuity can effectively reduce the gross value of your final estate. But it’s important to remember that you need to be comfortable with the idea of ​​giving away a significant portion of your assets and trust the charity or public foundation with which you set up the annuity. Another possible strategy is charitable permanent insurance.

When it comes to charitable gifts, it is very important that your legacy plan is in writing so that your family or executor has a clear understanding of your intentions and the fulfillment of your wishes. In fact, an executor cannot make a charitable donation on behalf of your estate unless it is written in your will. By consulting with experts in the legal, tax and insurance fields, you can understand the impact a donation will have on your estate and, perhaps more importantly, where you want to make an impact.

Have a question about money or lifestyle topics for seniors? Us too sixtyfive@globeandmail.com and we’ll find experts and answer your questions in future newsletters. Interested in more retirement stories? Sixty Five aims to inspire Canadians to live their best lives, confidently and securely. read more here and: register for our weekly retirement newsletter.