When it comes to retirement planning, there's a lot to consider. For many Canadians, thinking about retirement leads to mental images of travel, time spent with loved ones, and a chance to pursue hobbies and passions.
Ensuring they have the financial freedom to do those things is why so many Canadians spend so much time and effort saving and planning for retirement. But the reality is that retirement looks different for everyone, and chances are you may encounter some expenses you weren't expecting once you reach your golden years.
"While taking the leap into retirement and starting the next phase of your life can be a very exciting time for many, it can also be stressful depending on someone's personal situation and the planning and preparation they have done in terms of their finances," said Kevin Moffatt, Vice President, Canadian Personal Banking Business Management & Governance and the TD 'Seniors' Champion', (a designated member of the Bank's management team promoting seniors' interests).
"Whether its healthcare needs you may run into, unexpected housing costs or losses in investments, there are a number of things that many Canadians often neglect to think about when planning to retire."
To help you prepare financially for your retirement years, here's a look at some often-overlooked retirement costs you may encounter, as well as some tips for making them more manageable.
Healthcare costs
Everyone hopes they'll enjoy reasonably good health in their retirement years, but that may not be the case for everyone. Even with universal health care in Canada, there's still a chance you may experience health issues that wind up costing you money, whether that means paying for medications, treatments, or medical devices that are not covered under your provincial or territorial insurance plan. Budgeting to set aside a fund to cover these potential extra costs or looking into the possibility of specific insurance coverage for these situations could help you avoid being blindsided by these costs.
Loss of a partner
It's not something anyone wants to think about, but the loss of a partner could mean a significant financial change for the surviving partner – especially in cases where the loss is sudden or unexpected. Effective estate planning in the years prior to your retirement could help mitigate against such an outcome. This could include determining if you and your partner should each have a life insurance policy, being aware of whether your partner has a pension and if you would be entitled to any portion of it on their death, and having a Will for each of you that you keep up to date.
An adult child who may need financial assistance
For many parents, it's natural to want to help your children out financially from time to time if you have the means to do so. But if one of your children should run into a financial crisis, it could put your own retirement savings at risk. If you decide to give or lend money to one of your children who is in need financially, you may want to set a limit on how much you're willing to offer and establish the terms and conditions of the gift or loan in advance. It may also be the case that you may have to say no – or, alternatively, help them with some cost-free alternatives, such as babysitting or temporary free lodging at your home.
Unexpected housing costs
While many Canadian homeowners are hoping to have their home paid off when it's time to retire, that's not always the case. And even if you are lucky enough to be mortgage-free in retirement, home expenses of course don't end there. Unexpected home repair costs can arise at any time. But ensuring you have budgeted to set aside funds specifically for regular, proactive maintenance around the home could help stop minor problems becoming big, pricey ones. Aside from regular maintenance, you could be faced with having to make certain renovations to accommodate any changing physical needs you may have – such as the need for wheelchair access – which is another potential overlooked housing cost. Extra savings in your housing budget could help you prepare if such expenses should occur.
Long-Term Care
With so many Canadians living longer, there's a chance you could make it to advanced old age – and that could mean higher out-of-pocket healthcare costs. Whether you're looking at homecare costs for “aging in place" or eventual retirement home or nursing home costs, planning ahead could help you cover more of those long-term care needs.
Proper tax planning around your registered investments
If you're fortunate enough to have saved money in a Registered Retirement Savings Plan (RRSP) that you can draw on for your retirement, it's worth spending some time to do some tax planning.
Once you turn 71, your RRSP must be converted to a retirement income fund, or used to purchase an annuity no later than December 31 of the calendar year you turn 71.
"When you retire, most Canadians' tax situation becomes completely different from when they were working," Moffatt said.
This article is for informational purposes only, and its information should not be construed as legal, tax, investment, financial, or other professional advice. The information provided is general and does not address the circumstances of any particular individual or entity for which you must obtain your own legal, tax or other professional advice.