How to Manage Money at Every Age
Want cash for life? Here’s a financial plan to help you manage money in your 50s, 60s and 70s.
Planning for Retirement?
While financial planners advise clients to make sure they start thinking about their futures as early as possible, it’s equally important to be savvy about your savings later in life. Here are some tips on managing money in middle age and beyond.
Managing money in your 50s
In your 50s, you’re likely working to bring your financial objectives within reach. Do some rough calculations to estimate what you’ll need to retire at age 65. Figure out how much you plan to spend each year after you retire, then subtract any government pensions (which might amount to $32,000 a year combined for a couple where both parties had long careers at average-paying jobs-that is, ones with a salary of approximately $50,000 each), as well as company pension payouts. The amount left over is what you’ll need to draw from your nest egg each year.
Once you map out your goals, you can begin to ramp up your saving. First, though, pay off your mortgage and other debts. Many Canadians manage that by their mid-50s, but if you’re among the growing group who needs more time, do it as quickly as you can. If you and your spouse make average salaries or better and can set aside 25 to 40 per cent of your gross income for 10 years, that should provide enough for a typical middle-class retirement.
This decade marks the peak of most people’s earning abilities-that is, unless you’re suddenly downsized. If you sense that your job is in jeopardy, adjust your lifestyle immediately. “Even with severance and employment insurance payments, a job loss can mean months in lost earnings,” says Annie Kvick, a certified financial planner in North Vancouver. “I have a client who knows she may be laid off in nine months, and she’s preparing now.” If you do get laid off, Kvick notes that you can often arrange to have a severance package paid out over two years to minimize the impact come tax time.
Managing money in your 60s
If you happen to have $500,000 or more saved up at this stage, you may want to retire early or change jobs and do something you love for less pay. If your finances are tight, you may have to work longer than anticipated or scale back on your projected lifestyle. Delaying retirement for two or three years can also have an outsized impact: you can draw down more each year from your nest egg if it doesn’t have to last quite as long, and government pensions pay more per annum if you start them later on.
Now is also when you should begin to adjust your investments for retirement. Protect yourself from downturns in the market by structuring your portfolio in such a way that you can wait out dips. When you retire, you may want to make sure you can generate five to 10 years’ worth of cash flow to cover your basic needs without being forced to sell your stocks or long-term bonds at inopportune times.
Retiring comfortably costs less than many people think. Still, even the best plans can be upended. “Boomerang kids are a reality these days, and for most of them, it’s natural to take advantage of Mom and Dad’s goodwill,” says Rona Birenbaum, a certified financial planner in Toronto. She encourages parents to set clear boundaries and manage expectations accordingly. “Limit how much time you will allow them to stay, or they may never leave.” In many cases, six months to a year should be long enough for your child to recover from financial setbacks. In the meantime, make sure everyone is contributing to the household by making meals, sharing grocery bills and chipping in for gas for the car.
Managing money in your 70s
As you simplify your lifestyle and plan your legacy, you will need to keep recalibrating your finances. There may come a time when you’re unable to do as much, physically, as you can now. One option is to renovate your home to improve accessibility-adding a walk-in bathtub or shower, for instance. Many seniors also choose to sell the multi-storey family home and buy a smaller bungalow or condo.
If you’re concerned about outliving your nest egg, your early 70s can be an opportune time to put some money into annuities. While low interest rates mean annuities offer low payouts, this option does provide guaranteed income for life. Still, it’s not for everyone, particularly those with poor health or reduced life expectancy.
You’ll also want to think about your legacy. If your finances are ample, consider giving away some money now-to family or to charity-instead of leaving everything to your estate. For example, a contribution of even a few thousand dollars a year to a grandchild’s Registered Education Savings Plan (RESP) can make a huge difference to his or her future success-and you’ll be remembered for it.