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GTA waterfront homes

Budget 2019 comes up short

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Budget 2019 comes up short

GTA waterfront homes

The federal government released the much-anticipated Budget 2019 this week, with homebuyers, builders and others awaiting measures to address housing issues.

And in short, it comes up, well… a little short.

First-time homebuyer help

Much of the housing focus in Budget 2019 was on addressing the needs of first-timers, namely with a new First-Time Home Buyer Incentive.

  • The Incentive would allow eligible first-time homebuyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corp. (CMHC).
  • About 100,000 first-time buyers would benefit from the Incentive over the next three years.
  • Since no ongoing payments would be required with the Incentive, Canadian families would have lower monthly mortgage payments. For example, if a borrower purchases a new $400,000 home with a five-per-cent down payment and a 10-per-cent CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month.
  • CMHC to offer qualified first-time homebuyers a 10-per-cent shared equity mortgage for a newly constructed home or a five-per-cent shared equity mortgage for an existing home. This larger shared equity mortgage for newly constructed homes could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in the largest cities.
  • The First-Time Home Buyer Incentive would include eligibility criteria to ensure that the program helps those with legitimate needs, while ensuring that participants are able to afford the homes they purchase. The Incentive would be available to first-time buyers with household incomes of less than $120,000 per year.
  • Budget 2019 also proposes to increase the Home Buyers’ Plan withdrawal limit from $25,000 to $35,000, providing first-time buyers with greater access to their Registered Retirement Savings Plan savings to buy a home.

Noticeably absent from the housing measures was any adjustment to the stress test, which a number of experts say is necessary.

Industry reaction

“The Building Industry and Land Development Association (BILD) agrees with (Federal Finance Minister Bill Morneau’s) comments that there aren’t enough homes for people to buy or apartments for people to rent,” says Dave Wilkes, president and CEO.

“BILD feels the policies presented in (the) budget are a step in the right direction to help first-time homebuyers. We will continue to advocate for a review of the stress test so that first-time homebuyers can realize the dream of homeownership. Supply challenges still exist and are at the centre of the current unbalanced market, and we call for action on these by the provincial and municipal government.”

Supply challenges in the Greater Golden Horseshoe are serious, and Budget 19 fails to address them.

“This was a re-election budget that didn’t move the dial for new-home buyers in the GTA,” Richard Lyall, president of the Residential Construction Council of Ontario (RESCON) told HOMES Publishing. “While increasing RRSP borrowing for first-time homebuyers is helpful, creating The First-Time Homebuyer Incentive at a maximum of $500,000 doesn’t help many Torontonians or GTA residents.”

The Canadian Home Builders’ Association (CHBA) had been recommending a shared appreciation mortgage approach for some time, as a tool to help those who can’t get into homeownership but have the means to pay rent.

The modification to the RRSP Home Buyers’ Plan will help get Canadians into their first home, but will also act as a burden because the loan has to be repaid within 15 years, including a minimum of 1/15th per year.

“This means that, in the years following their home purchase, a homeowner has the additional financial responsibility of repaying their RRSP,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial.

Important details of the First-Time Home Buyer Incentive program have yet to be released. For example, says Laird, it remains unclear whether the government would take an equity position in homes, or whether the assistance would act as an interest-free loan.

“This is an important distinction because if the government is taking an equity stake in a home, the amount the homeowner would have to pay back would grow as the value of the home increases,” he says.

The very launch of the program is surprising, Laird says, given that the BC Government implemented a similar measure a couple years ago, with unsuccessful results, and it was terminated in 2018. First-time home buyers found it difficult to understand and unappealing to have the government co-own their home.

Let’s do the math

Under existing qualifying criteria, including the stress test, homebuyers can qualify for a house that is 4.5 to 4.7 times their household income.

Under the new First-Time Home Buyer Incentive, however, the government has set a purchase limit of four times household income for the mortgage, plus the amount provided by the government, according to Ratehub.

By participating in this program, first-time homebuyers effectively reduce the amount they can qualify for by about 15 per cent, and their monthly mortgage payment naturally decreases in lockstep.

A household with $100,000 of income, putting a minimum down payment of five per cent, can currently qualify for a home valued at $479,888 with a $2,265.75 monthly mortgage payment.

Affordability calculations

The maximum purchase price for the same household, if they participate in the first-time homebuyer incentive, drops to $404,858.29 with a five-per-cent minimum down payment. The total mortgage amount would then be $400,000 (or four times their household income).

Mortgage payment calculations

If the household took a five-per-cent incentive from the government (for resales), their mortgage amount goes to $378,947.37, and monthly payment is now $1,810.90.

If the household took a 10-per-cent incentive, (for new homes) their mortgage amount goes to $357,894.73, and  monthly payment is now $1,710.29.

Stress test modifications

The CHBA is among the industry groups that is pushing for modifications to the existing mortgage stress test, which has served to lock out too many well-qualified Canadians due to the market and interest rate changes of the past year.

“The First-Time Home Buyer Incentive, if coupled with immediate adjustments to the stress test, has the potential for getting the housing continuum functioning again,” says CHBA CEO Kevin Lee. “It is essential that these changes come quickly, though. Current restrictions on mortgage access mean that many millennials and new Canadians are seeing homeownership slipping away, and in many markets the economic impacts are substantial.”

Looking ahead to the 2019 federal election, CHBA will be encouraging all federal parties to address housing affordability in very meaningful ways in their respective platform documents.

Budget 2019 housing measures

Budget 2019

 

 

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Debt

Paying down debt a top priority in 2019

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Paying down debt a top priority in 2019

Debt

It may be a new year, but not necessarily a happy one for everyone. A new CIBC poll finds paying down debt is the top financial priority for Canadians in 2019. Almost a third (29 per cent) say they’ve taken on more debt in the past 12 months, citing day-to-day expenses as the key reason for piling up debt.

“Debt weighs heavily on Canadians, so it’s no surprise that Canadians continue to put debt concerns at the top of their list of priorities each year,” says Jamie Golombek, managing director, CIBC Financial Planning and Advice. “Debt can be a useful tool for achieving long term goals such as home ownership or funding education, but if you’re turning to debt to make ends meet, it may be time for cash-flow planning instead.”

Key poll findings:

  • Canadians say their top sources of debt are: credit card (45 per cent), mortgage (31 per cent), car loan (23 per cent), line of credit (22 per cent), personal loan (11 per cent)
  • 28 per cent say they have no debt
  • Top concerns are rising inflation (64 per cent), low Canadian dollar (34 per cent), and rising interest rates (31 per cent)

While two-in-five (39 per cent) Canadians worry that they’re forsaking their savings by focusing too much on their debt, the vast majority still (84 per cent) believe that it’s better to pay down debt than build savings. This poll finding comes as Statistics Canada recently reported that the average Canadian household owes $1.78 for every dollar of disposable income, even as the pace of borrowing continues to slow.

“There’s rarely enough money to do everything, so it’s critical to make the most of the money you earn by prioritizing both sides of your balance sheet – not debt or savings, but both,” says Golombek. “It boils down to trade-offs, and balancing your priorities both now and down the road. The idea of being debt-free may help you sleep better at night now, but it may cost you more in the long run when you consider the missed savings and tax-sheltered growth.”

Tips to make your money go further in 2019 

  • Write down your income and expenses for a three-month period to determine if your cash flow is positive, neutral or negative
  • Make a plan. If you’re cash-flow positive, use the extra cash to pay off high-interest debt – not your mortgage – first. Use the surplus to build long term savings in an RRSP or TFSA, and if you have kids, put away a little extra in an RESP. If your long-term savings are on track, consider increasing your mortgage payments. If you’re cash-flow neutral or negative, look for ways to cut expenses or lower interest by consolidating debt at a lower rate
  • Automate your plan. Time your savings or debt-repayment plan with your payroll. Putting money directly to your goals right off the top can help you both achieve your goals and get by with less
  • Review and prioritize your goals. You likely have many goals competing for your wallet. Meet with an advisor to build a financial plan that gets you on track to achieving what’s important to you today and the many years ahead

Source: CIBC

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Tax

How retirees can maximize their tax savings 

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How retirees can maximize their tax savings 

Tax

While retirees may be exempt from the morning alarm and the daily grind that follows, they unfortunately aren’t exempt from paying tax – and filing as a retiree can be complicated.

Although there’s no longer employment income to account for, new forms of income from a pension or Registered Retirement Income Fund (RRIF) withdrawals result in different tax obligations as well as new credits and deductions to consider.

For this reason, H&R Block has compiled the top things retirees need to know about filing to ensure they’re keeping their taxes to a minimum while avoiding penalties.

Take advantage of pension income splitting

Splitting income is usually a good idea when one spouse or common-law partner receives a larger pension than the other, as it can help reduce the overall tax burden as a household. Up to 50 per cent of pension income can be transferred from one spouse or partner to another, assuming you both live in Canada and have not split up for more than 90 days at the end of the year. To split the pension income, you’ll have to complete Form T1032 (Joint Election to Split Pension Income).

When reporting pension income, you may also be entitled to the pension credit, which could provide you with a personal amount of up to $2,000 come tax time. What’s even better is that if you and your partner split your pension income you may both be able to claim it.

The tricky part is knowing which pension income is eligible for splitting and which isn’t – as it depends on both age and type of pension received. Unfortunately, CPP (Canadian Pension Plan), OAS (Old Age Security) and QPP (Quebec Pension Plan) are some forms of income that are not eligible for splitting. However, if you’re 65 or older, eligible pension income includes annuity payments under a Registered Pension Plan (RPP), Registered Retirement Savings Plan (RRSP) or a deferred profit sharing plan (DPSP), and payments out of or under a Registered Retirement Income Fund (RRIF). If you’re under 65, eligible pension income only includes lifetime annuity payments under an RPP and certain other payments received as a result of the death of your spouse or common-law partner.

For example, Mary’s total income for 2018 is $70,000, of which $55,000 is pension income ($15,000 was from other income sources) and qualified for splitting, as she’s more than65 years old. Her spouse, Joe, did not make any pension income that year and made only about $10,000 total through other sources of income. Mary can allocate up to $27,500 of her pension income over to Joe. When they file, Mary will report $42,500 in taxable income and Joe will report $37,500,but both will be able to claim the $2,000 pension income amount.

Know the qualifications for the age amount

It pays to age. If you’re 65 years or older by the end of the tax year, you can claim the federal age amount credit – as long as you earn less than $85,863 per year. The federal age amount is a non-refundable tax credit that allows you to reduce the amount of taxes you owe. The amount decreases as income increases, but if you have an income less than $36,976 you’ll be able to claim the maximum amount, which is $7,333.

Don’t forget, if you’re eligible to claim the federal age amount, you’re also entitled to claim a corresponding provincial age amount, which varies depending on which province or territory you live in.

The great thing about these credits is that they’re also transferable to a spouse or common-law partner, which you may want to do if all or part of the age amount isn’t needed to reduce the amount of taxes you owe to zero dollars. For example, Joe can claim the maximum age amount of $7,333, but does not have any federal tax payable. Since the age amount is non-refundable and cannot be carried forward for use in a future year, this means it’s wasted if he keeps it in his hands. However, he can transfer this amount to his wife Mary to hopefully help offset the amount of taxes she owes to zero. It’s a win-win!

Report foreign property to avoid penalties

If you have assets abroad with a total cost amount of more than $100,000, you’re required to report the details of those assets on Form T1135 (Foreign Income Verification Statement). There are penalties for non-disclosure or late filing of these items of $25 per day, up to $2,500 per taxpayer, so you don’t want to forget about this one.

Foreign property encompasses everything from real estate, bank accounts, investment accounts, shares in foreign companies and bonds. Luckily, there are a couple of exemptions, such as Canadian registered accounts (RRSPs, TFSAs, RRIFs) as well as property overseas solely for personal-use or property used for business. However, as soon as a property is rented, it must be reported as a foreign asset.

Decide when to tap into retirement savings

At some point, you’ll want to convert your RRSP into a RRIF, which will provide you with a steady stream of retirement income. However, this does not have to be straight away. If you have other sources of income, it may be worth holding off and continue contributing to your RRSP for as long as possible – as contributions are deductible and can reduce their tax bill. Everyone has until Dec. 31 of the year in which they turn 71 before they have to convert their RRSP into a form of retirement income.

The bottom line is, you have many avenues in which you can maximize your savings. When it comes time to file, it never hurts to get professional advice from a Canadian tax expert as there are a ton of credits and deductions you won’t want to miss.

Tips provided by H&R Block Canada.

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RRSP Deadline Approaches

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RRSP Deadline Approaches

One week until RRSP deadline

You have until the end of the day on Thursday, March 1st to contribute to your 2017 RRSPs.

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Finance: Lessons Learned

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Finance: Lessons Learned

What Sears Canada taught us

Sears Canada permanently closed their doors as of January, 2018. Like Simpsons, Eaton’s and Simpson Sears before them, these iconic stores are all part of our history. It’s sad news when we hear about the bankruptcy of a business that brings back so many nostalgic memories.

The closing of Sears has left 12 thousand people out of work, and 18 thousand former employees wondering if they will receive the pension that they were promised. This is a perfect example of why all Canadians have to take steps to plan for their retirement, and to make sure that they will be financially secure no matter what happens. Regardless of what your savings situation might be, there are ways to disaster-proof your retirement.

Is your pension plan fully funded?

There are two major types of company pension plans – defined benefit plans and defined contribution plans. In a defined benefit plan, your pension income is guaranteed. Whereas, contribution plans can fluctuate depending upon the investments that you choose.

For defined plans, 99.9 per cent of pensions (private or public) are safely managed, and the money that you are promised is guaranteed. However, make sure that your private company pension plan is fully funded. You can do this by checking your annual pension statements. Look for something called the transfer ratio. You want it to be one-to-one or 100 per cent. That means that the fund is fully solvent, and even if the company goes bankrupt, the pension plan can meet its already existing pension obligations.

In the case of Sears Canada, pensioners may get less money than they had hoped for from their defined plan, as the fund has a funding shortfall of 19 per cent.

Self-pilot your savings

Making monthly contributions to your company pension plan is an excellent way to save for your retirement. However, that doesn’t mean that you should put your savings on autopilot, and assume that it will be enough. Even if you retire, and receive the full pension that your company plan has promised, you may have unexpected expenses that you didn’t plan for. In addition, your initial retirement plans may end up costing more than you originally budgeted. If finically possible, invest money in your TFSA and, if you have room, in your RRSPs.

Make a long-life plan

If you plan to retire in your 60s, take a look at what you might expect your spending to be over the next few decades. If you’re looking to create extra income, be creative. Make use of the skills that you already possess. Perhaps you could consult in your field of expertise, teach or tutor students. Take a look at your home environment, and determine if you have space for an income suite that can be rented for short or long-term stays. Any of these ideas would help to fund the retirement that you want – and they’d be on your terms.

We all want a comfortable retirement, so it’s important to build in insurances and make other arrangements if things don’t go as planned.

Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. She appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for ratesupermarket.ca. Follow her @alwayssavemoney. AlwaysSaveMoney.ca

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Finance: Aging Parents And Money

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Finance: Aging Parents And Money

Police are currently investigating a story about an 86-year-old woman from Ontario who was duped out of her life’s savings by a man posing as a bank employee. There were several red flags, including being asked for the money in cash. As we age, we may assume that younger professionals have more (and better) information than what we currently possess, so we may follow their lead. It was her daughter who became wise to the scam. These types of stories are all-too common.

Being smack-dab in the middle of the sandwich generation has never been more evident. Chances are, you’re the go-to person for everyone when it comes to fiscal advice, but it’s especially important to make yourself available to assist your parents with their financial options.

Active Advice

To have a parent come to you with what might seem like a simple question about money, may seem alarming. However, if they are now alone following the loss of their spouse through death or divorce, it may be the first time that they’ve had to deal with such things as keeping on top of monthly expenses, or withdrawing money from registered accounts like their RRSP or TFSA. And, in extreme cases, cognitive issues may now make it difficult for them to grasp certain concepts.

When it comes time for your parent(s) to retire, sell the family home and downsize, your suggestions, and influence, may prove to be invaluable. Not only can you provide financial input during these trying times, but much-needed emotional support as well. Take the time to really listen, and ask how you can help.

It’s not our role to teach our parents about financial literacy, but we can offer advice and assistance.

Common Concerns

In a recent survey by the National Council on Aging in the U.S., they found that a high percentage of people over the age of 60 were most concerned about how they would pay for unexpected, or emergency, expenses. Plus, they were worried about maintaining their current lifestyle, in terms of staying in their home and if they’d saved enough for retirement. With these anxieties in mind, ask your parents if their needs are being met.

Prepare Yourself

If you don’t feel confident about your own financial literacy, take the steps to educate yourself. ABC Literacy Canada and The Financial Consumer Agency of Canada are good places to start. Read up on all the benefits that your parents qualify for, and make sure that they apply for them, as most government benefits don’t start automatically. In addition, to claim benefits, their tax returns need to be filed and up to date. It’s important to stay on top of these details, as your parents will reap the benefits.

Be Aware

If you are on the older end of the life spectrum and are looking to your children for financial advice, remember that you are the one who is in control. According to the federal government, financial exploitation is the most common type of elder abuse. You don’t want anyone making decisions on your behalf that aren’t in your best interest. If someone is going to take advantage of your situation, it often starts with a health crisis, or after the death a spouse, partner or close friend. It’s not typical, but worth mentioning. It’s important that we look out for each other on every level – including financial.

Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. Rubina appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for ratesupermarket.ca. Follow her @alwayssavemoney. AlwaysSaveMoney.ca

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Condo Finance

Finance: What To Do With Your Tax Return?

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Finance: What To Do With Your Tax Return?

By this time many of you have done your tax return for 2016.

If you made significant contributions to your Registered Retirement Savings Plan (RRSP) you may be looking at a large sum of money being returned from the Canada Revenue Agency (CRA).

The CRA says the average return for the 2016 tax year is $1,650. It can feel like a big win when you see that money deposited. The tendency is to want to spend it on something fun and entertaining. But here’s the reality check. That money is income tax you over paid to the government and should be treated differently than if, for example, you won the lottery. Here’s what you should be doing with it.

Reinvest it

If you’re getting a refund because you made large contributions into your RRSP, you should take that return and deposit it right back into your retirement savings. That will kick-start your contribution for the 2017 year and result in a healthy return for next year that you can do the same with. This can be the hardest point to convince Canadians on, but it is the best move for your tax refund money. Once in your RRSP you can decide how you want to invest it by talking to a financial advisor or doing the research on your own.

Pay down debt

If you have a significant amount of debt, especially expensive credit card debt, it would be a good idea to use your tax refund to get those balances paid off. This will immediately save you money that you would have paid in interest payments and improve your credit score, as you will be carrying less liability. If you have no credit card debt but are carrying a balance on your line of credit, pay that down with your refund money. Then make a plan to use the money you would have spent to make debt payments to be deposited into a long term savings account, or even better, your RRSP.

Make a lump sum mortgage payment

Canadians are carrying a record amount of mortgage debt. This is largely due to real estate prices seeing double digit growth in the last few years across most parts of Canada. If you’re carrying a significant mortgage balance, use part of your return to make a onetime lump sum payment. This will automatically lower your mortgage loan, and result in more of your payments going towards paying down principal and less towards interest. It will also knock years off the life of your mortgage. Use a simple mortgage calculator to see how a lump sum payment will affect your financial situation right away.

What not to do with your tax return

The idea of spending your refund on a fancy vacation, some new clothes or a home renovation is appealing. But none of these expenses are appropriate to spend your tax return money on. The better move is to take your return and do something financially responsible, like pay down debt and invest. The immediate benefit you get from doing that will result in more money in your pocket. For example, being debt free keeps money in your bank account that you would have used to service that loan. That extra money is what you can use on the fun stuff — the trips, the clothes, the dinners out with friends. Once you have your financial health in check it’s easier to make decisions about your money that are much more interesting than making an RRSP contribution or paying down debt. It’s not a lottery win; it’s your hard earned money being returned. So treat it with that respect.

RUBINA AHMED-HAQ is the Finance Editor for HPG. She regularly appears on CBC, CTV and Global Toronto. She writes for RateSupermarket.ca, Debt.ca and AlwaysSaveMoney.ca. She’s a graduate of the Humber College journalism program and holds the CSC designation. Follow her @alwayssavemoney. 416.669.2245

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Home Realty – How To Get a Foot In The Housing Market

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Home Realty – How To Get a Foot In The Housing Market

Sharing a home with other family members one way of beating sky rocketing prices.

The GTA housing market has gone wild with detached homes selling for hundreds of thousands of dollars over asking. Traditional single family houses are out of reach for most first-time buyers. Even move-up buyers looking to purchase an actual house might be feeling the pinch these days, given how sky high prices have soared.

The average price of a new detached house in the GTA has soared from $440,000 a decade ago to more than $1.2 million. It’s forcing many purchasers seeking single-family homes to head much farther afield, beyond the GTA’s borders, in order to be able to afford a home.

That doesn’t mean folks choosing to remain in the GTA have to give up on the idea of homeownership, mind you. In this vigorous market, where prices keep climbing higher, there are still ways to get a foot on the property ladder.

First, you could buy a house with family members, likely your parents. Borrowing from the Bank of Mom and Dad is how most first-time buyers are able to get into the market these days. Parents — or grandparents — might simply give the kids the down payment, helping them qualify for a mortgage. Or, in some cases, the parents might end up co-owning a home with their kids — and eventually grandkids — sharing the house, its responsibilities, as well as the equity gains.

But a more comfortable option for some might be to buy a house with a friend. In this case, you can get what’s known as a mixer mortgage, which can be split into separate terms for the two owners with fixed and variable rates and different amortization periods.

You might also consider buying a bigger property with several friends and renting out part of it. Some ground oriented townhouses have finished basements, which can be ideal for use as rental suites. Renting a portion of your property to a third party is a great way to help cut down otherwise hefty mortgage payments.

Whether buying a home with family or friends, you must be sure to put together a legally binding agreement that outlines responsibilities for payments and contingencies. What happens if someone falls ill and can no longer handle payments? Or what if the situation sours and things need to be undone? It’s best to have this outlined in writing so there are no nasty surprises if circumstances change.

If you want to buy a home but not be tied to a partner in the purchase, remember that you have the option of taking money out of an RRSP via the Home Buyers’ Plan, and use that for a down payment. This could help to shore up your other savings and get you across the mortgage loan qualification line.

Multiple debts might be taking a toll on your personal finance profile, so before applying for a mortgage you might also want to consider having student loans and credit card debt consolidated into a single loan. This could help improve your prospects in the qualification process.

Don’t let the ever-climbing house prices freak you out. There are still ways to get into the homeownership game, it will just require a bit of creativity and flexibility.

Debbie Cosic, CEO and founder of In2ition Realty, has worked in all facets of the real estate industry for over 25 years. She has sold and overseen the sale of over $15 billion worth of real estate and, with Debbie at the helm, In2ition has become one of the fastest-growing and most innovative new home and condo sales companies. In2ition has received numerous awards from the Building Industry and Land Development Association and the National Association of Home Builders.

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Finance : Is working in retirement worth it?

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Finance : Is working in retirement worth it?

The attitude of retirement is changing. According to a 2014 Bank of Montreal survey on work habits after retirement, 59 per cent of the respondents said that they would likely take a part time job after the age of 65. For some retirees, the part time job is an opportunity to work at a place where they enjoy working, and for others it’s a financial necessity in order to pay the monthly bills.

You’ll still pay income tax

Working in retirement doesn’t mean that you’re free from paying taxes. It’s important to have a clear financial picture of your guaranteed retirement income, and if your post-retirement job is going to put you into a higher tax bracket. For 2016, Old Age Security (OAS) for retirees with a net income exceeding $73,756 starts to get clawed back. For each dollar of income above this limit, the amount of the basic OAS pension is reduced by 15 cents. If you’re income is close to this amount, ensure that you’re not going to lose more than you gain.

Extend your savings

On a positive note, even if you brought in $1,000 per month, it can significantly increase the life of your retirement savings. An analysis, prepared by ETF Capital Management’s Fabien Ouellette, suggested that if a couple, between the ages of 65 and 75, had expenses around $60,000 per year, as well as a nest egg of $500,000, then a monthly income of $1,000 would help their savings last well into their 90s. They would see the value of their savings rise in the first few years of retirement, in comparison to a couple who didn’t earn extra income and would experience their savings depleted by their 80s.

The cost of retirement

According to financial experts, you will require 70 to 80 per cent of your current working income to live on during retirement – that’s if you choose to live in the same residence. It does not take into account the cost of travel, hobbies, or other extra events that you may want to take part in. It also doesn’t consider the lower cost of living if you choose to downsize your home. According to a 2015 BMO Financial Group study, Canadians spend, on average, $2,400 per month in their retirement.

If working in retirement, ensure that you’re not going to lose more than you gain.

Get the real number

Calculate what your life costs, including your mortgage (if you have one) or rent. Add up your monthly bills, plus insurance premiums for your home and car, as well as how much you spend each month on groceries and maintenance costs. Next, add in any trips that you’d like to take, as well as entertainment and hobbies you’ve always wanted to try. Your retirement dreams may actually increase your cost of living.

Calculate your retirement income In retirement, you may have a work pension, on top of the Canada Pension Plan (CPP), Old Age Security (OAS), other government benefits and personal savings. Chances are, you have a Registered Retirement Saving Plan (RRSP) and a Tax Free Saving’s Account (TFSA). Talk to a tax professional to see what the financial impact would be of having a post-retirement job.

There are social and mental health benefits that come from being engaged in the work force after the age of 65. Working in retirement can be good for one’s wellbeing, and might be something that you choose to do.

 

Personal finance expert and journalist, Rubina Ahmed-Haq holds a CSC designation, appears in Condo Life, on CBC Radio, CBC News Network, CTV Your Morning, Global Toronto ratesupermarket.ca and debt.ca. Follow her on twitter @alwayssavemoney. AlwaysSaveMoney.ca

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