Interested in getting more from retirement income? We sat down with a local expert, Jeremie Bornais, to find out how you can maximise your retirement income.
Say the word retirement and you can expect any number of reactions. For some, retirement is an exciting time when we can be free to finally enjoy the rewards we’ve earned after years of hard work. For others, retirement is a time defined by one question: how will I make ends meet without a working income.
Making the most of your retirement is far from easy – in fact for many of us, easy might be the last word we use to describe it. But that doesn’t mean it isn’t possible. With more people at the age of retirement than ever before in Canada, knowing how to prepare and manage our financial lives after retirement couldn’t be more relevant.
That’s why I sat down with local financial services expert, Jeremie Bornais. Jeremie owns and operates Bornais Insurance and Financial Services Inc. right in the middle of historic Amherstburg. As a professional in the financial services industry, he had lots to say on the topic, and hopefully, anyone reading this will find his advice as helpful and interesting as I did. Below is a transcript of our conversation, along with plenty of advice for getting more from retirement income (AT is me, JB is Jeremie).
AT: Good morning Jeremie, thank you so much for doing this. My first question is maybe a little less than straightforward, but I think it’s something a lot of people don’t know the answer to. Everyone says to start saving or investing now, but few ever say exactly how. Can you give us some more specific tips or advice on how to get the most from our savings?
I’m glad to be doing this. And that is a great question. I believe in the four pillars of financial success, so you divide your investible funds in four ways. The first is to pay down debt. The second is to set up financial protections and safety nets like insurance [including] life insurance, some good term insurance, and critical illness insurance. This way, if I get critically ill, my whole life doesn’t fall apart. Disability plans are very important as well. You need to create a financial safety net as well as an emergency fund to make sure that if one day you’re laid off, you can make sure your bills are paid.
The next pillar is to save for retirement. So, we start putting funds away on a consistent basis, as young as you can into anything from stocks, funds, mutual funds, segregated funds, annuities, GICs. There are so many ways to invest your money, and that’s why it’s best to consult a financial planner to see what’s best for you.
The fourth pillar is putting stuff together so that you’re planning on giving some of your money away. Because at this point it’s not all about me [and] it becomes about the people you’re looking after. Especially towards the end of your lifetime, it becomes about how do I take this nest egg that I’ve accumulated that I may not need, and… transfer that to the next generation in the most tax effective way.
AT: This almost sounds like a variation of Maslow’s hierarchy of needs, only for your money.
JB: It’s exactly like Maslow’s hierarchy of needs. That you need to take care of the basics before you build. Many young people come into my office and they want to build the roof, before they even have a foundation… You have to build from the base and move up, and when you do that you have a strong financial plan.
AT: Now you mentioned insurance. When should someone start considering different forms of insurance? Is there anything specific to retirees or people about to retire, that we should keep in mind?
JB: There are several different types of insurance that would be important to retirees. One, would be enough insurance to cover their last-minute expenses: their funeral, their taxes, their debts, [and] legal fees.
The other important one as people get closer to retirement, especially when you start hitting the age of 50 and start considering retirement, would be long-term care insurance. Nothing will drain your estate more than the cost of caring for you, especially if you’re married. It can drain the estate of you and your spouse [and] it can get to the point where your spouse has no money to live, simply because it’s all going towards your care. And there are less and less companies in Canada that are offering that product because the cost of providing the care has gone up.
So, my advice is to apply for it [now] because once you have it, it can’t be taken from you. I personally bought my long-term care insurance for myself and my wife when we were 35. And it was very inexpensive and it still is very inexpensive.
AT: And that’s definitely something that I think most people haven’t even considered.
JB: Yea, you probably haven’t even considered or read about or even thought about. It’s really because, you know, we’re basically talking about a time when you can’t take care of yourself. And nobody wants to think about that time – we’re all going to be healthy and go to sleep and then we won’t wake up the next day. But for most of us, that’s not what happens. Because the statistics say that 52% of people will need some form of long-term care. And in many cases the premium is tax deductible as a medical expense.
AT: As we know, more Canadians than ever are at or close to a retirement age. Can you tell us something that we can do right now to maximise our retirement income?
JB: I mean it’s kind of a long answer, but it’s a big question. But the reality is that each person is different. There are so many scenarios out there to minimize and maximize what you can get in retirement.
So what do you do? There are basically three things you should look at. First, let’s look at minimizing any debt or making that debt as inexpensive as possible.
Second, if there is no debt, how do we structure [your] income in order to minimize clawbacks with old age security. Right now, Old Age Security is about $574 a month, which is approximately $7,000 a year. So, when you’re talking about that type of income and giving that away… because of not strategically planning on how you’re pulling out your investments, that can create a problem.
Let me give you an example: a husband and wife both have pensions, both have RSP savings, and they retire at the age of 55. They think that they don’t really need their retirement funds right now because they have a great pension and it covers all of their expenses, so they decide to defer the taxes on their RSPs as long as possible and let it sit there until they’re 71 years old. In this case, there’s a good chance that with their forced minimum withdrawals out of their RSPs, [they will] put themselves into a tax bracket that would make them lose their old age security. So [they will] both lose almost $7,000 a year in income – that’s $14,000 a year that they’ve lost because they have deferred the taxes on their RSPs for so long.
So, every single person needs a proper financial and estate plan to figure out when the best time to deregister funds are.
AT: In summary then, it’s not as simple as just collecting your pension – you really need to plan things out.
JB: You need to plan it and you need to be strategic. That’s why it is so important to consult a qualified financial expert about your specific situation.
AT: Employee pensions seem to be considerably less common today than they were in the past. How can people who are still in the workforce ensure that they get to enjoy a fulfilling retirement?
JB: That’s very true and pensions have changed. In the past, the employers took a percentage of your pay and they invested it into a pension plan. And even today, they still do some of that, but it’s not quite as much as it once was. So, you as the individual employee, especially when… you’ve got two jobs or three jobs, you must strategically invest money into your own pension plan. There are several products on the market today that give you the ability to invest your own money into your own pension and get a very, very competitive rate of return with no risk [that can help] provide for your future after retirement. It now becomes your own responsibility to start [saving] and the younger [you start] the better.
AT: So, what would you say is a good amount someone should invest from each paycheck?
JB: Now that is a huge question that is also dependent on your age and how close you are to retirement. But the rule of thumb is that everybody should save 10% of what they make per year. Whether that goes into pensions, tax-free savings accounts or other types of investments where you can get a little more aggressive. But if someone comes to me at 55 and say they’re retiring at 65 and they’ve put nothing away, the financial plan becomes how do we manage your lifestyle to make retirement affordable for you based on old age security, CPP or other available benefits.
AT: Now, let’s say I’m 50 years old with no pension and little savings. How would I change my lifestyle now, so that in 10-15 years, I can make sure I’m comfortable?
JB: I would say the most important thing to do, is to look at what your expenses were before you retire and say ‘how do I minimize those expenses now.’
For example, people who are retiring and they’re used to going for lunch every day on the job. Now that they’re home, they may miss the people they used to hang out with, but continuing to go out to that same meeting place every single day can really eat into your fixed income. So, that part is a lifestyle change. Do I really need two vehicles anymore or can we go down to one? Do we need two cell phones anymore, or can we go down to one? I mean I can’t tell you how many people who are about to retire that each have cell phones, unlimited internet, and a home line, and none of it gets used. Yet, their bills are through the roof every month and they can’t understand why they have no money.
So really take stock of what [you are] spending money on that you needed while you were working that you may not need in retirement. You need to re-budget. Just reducing expenses will be a huge step towards maximising your income.
AT: Aside from taking a vacation or sleeping in on a Monday, what do you think is the first thing we should do when we retire?
JB: Actually, I recommend exactly that. I’ve been involved this business now for 23 years and I’ve seen retirees put off the things that they’ve wanted to do for a long time and I’m a big believer of looking at what is it that is important to myself and my spouse that we haven’t done that we would like to do. So, if that means adding on that guest bedroom, or whether that means that we’ve really been wanting to find a hobby we can do together. Take the time, especially if you retire while you’re still healthy to do the things you like to do. Because the biggest regret I hear from seniors is, ‘I wish we would have done more things but we thought that we’ll do them later, then we put them off.’ Financial planning is also goal planning.