Reaching the Peak
The fifth decade is when it becomes possible to focus on one’s remaining life. “By 50, you know who you are,” said Derek Moran, a principal in the Kelowna, B.C. office of Vancouver-based financial planning firm Macdonald Shymko & Co. “Your dreams have materialized. Or not. You have arrived or you know where you will be when your career is over. Retirement stops being just a concept. It becomes real and visible.”
The 50s are when some costs of life in prior years tend to decline or end. One’s children are likely leading their own, independent lives. The mortgage will have been paid down or paid off. It’s time to reassess life insurance needs, to get a will prepared or have it reviewed. And it’s a time when the individual can begin to focus on his own needs once more, said Caroline Nalbantoglu, a consultant with fee-only financial planning company PWL Advisors Inc. in Montreal.
The 50s are also a special decade in the flow of income. “People’s incomes tend to peak in their fifties,” Ms. Nalbantoglu noted. “It’s a time for an assessment of what pensions and other financial resources already exist. That means totaling company pensions, potential payoffs from the Canada Pension Plan or other government pension plans that may be indexed, and examining what private resources are available in Registered Retirement Savings Plans and non-registered investments. The assessment should include other assets such as houses or real estate. One should then consider what one’s financial needs will be when one’s former work ceases or tapers off,” she said.
The kinds of investments one makes in the 50s have to begin to change, said financial planner Dan Stronach, president of the Stronach Financial Group in Toronto. “You have to make plans to shift from growing capital to preserving it. That means, in practice, shifting from buying stocks that have high rates of increase of earnings to stocks or other financial assets that generate income.”
Retirement is not necessarily abrupt, Mr. Stronach added. For every person who wants to bolt from his job into a life of golf there is another person who refuses to leave his desk until his company pushes him out of his corner office into the hall, he noted. The 50s are the time to set up a plan for making a transition based on when one expects to leave the labour force or conventional work, he said.
How the transition will happen depends substantially on the work one does, Mr. Moran explained. “In some occupations, typically union jobs in industries or professional or administrative jobs in companies with employment contracts that cover retirement, there is a set date for leaving work. That’s absolute termination of work. In other employment, such as law or accounting and in many small businesses, work may taper off gradually.”
In the 50s, one can begin to figure out when pensions will be cashed in, which postponed, and how one will manage such things as the clawback of Old Age Security that begins at about $60,000 of net income in 2005 dollars. The trick is to smooth out and reduce income liable to be clawed back or taxed, Mr. Moran explained. “The way to do that is to spread income out over time and to divide it where possible with a spouse. You may not know your life expectancy, but you can figure out your tax liability,” he said.
One can receive Canada Pension Plan payments at full value at age 65. One may also begin payments in a window from age 60 to age 65 provided that one has ceased work for a period that amounts to two months. Early application results in a penalty of ½ of 1 per cent of the age 65 payment for each month prior to age 65 that one begins receiving payments. One can also postpone payments as late as age 70 with a bonus of ½ of 1 per cent for each month after one’s 65th birthday that one begins receiving CPP.
“Plan to spread it out by applying as early as possible within the CPP rules,” Mr. Moran suggested. You may get hit with a reduction of the benefits you would have at age 65, but you are spreading the payments over a longer time,” he said. If one is in a high bracket at age 60, it would be important to find a time to begin payments when one’s tax bracket is lower, he added. CPP payments can also be assigned to a spouse and, if the spouse is not working or is in a lower tax bracket, that can be part of the decision of when to begin taking CPP, he noted.
“You have to know yourself before you can capture the retirement of your dreams,” said David Christianson, a fee-only financial planner with Wellington West Total Wealth Management Inc. in Winnipeg. Financial planning should fulfill personal goals, he added. “In the 50s it’s time to ensure that you’ll be eventually able to do the things for which you worked and saved.”
Andrew Allentuck writes about investments for The Globe and Mail, and reviews books on finance for globefund.com and globeinvestor.com. He is also the author of several books.
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