Having a well-thought-through retirement plan is a sure way to avoid outliving your savings. Canadians are living longer than ever. However, the current market volatility caused by the COVID pandemic has made your plan unrealistic.
The COVID-19 crisis leaves many Canadians with a retirement plan based on old assumptions. Perhaps the value of their portfolio is lower than before with projected returns decreasing as well. As well, with interest rates near zero, your purchase power could drop significantly should inflation begin to rise. What’s more, since some financial support programs, such as mortgage deferrals, came to an end at the end of 2020, retired persons may be feeling the pinch more than ever.
Faced with this, it’s important to reassess your retirement plan. Start by evaluating how much money you have vs. how much you expect to spend, then adjust accordingly. This applies in particular to those already retired, as well as those 5-10 years from retirement, who don’t have as much time to ride out the current economic climate.
Reassessing Your Retirement Plan
To draw a realistic picture of your retirement finances, answer the following questions:
- The age you plan to retire if you’re not already retired
- The value of your assets
- How much you expect to spend each year in current dollars
- Your life expectancy (this should be until at least age 90)
- Figure in a base inflation rate of 2%
- Add a base rate of return (you can use 4% to err on the side of caution)
- The tax you can expect to pay based on current tax law and projected income
Once you’ve crunched these numbers, you will have a clear and current picture of your retirement income. You will also be aware of your potential shortcomings and your mortgage broker can look into how to make up for those shortfalls. If that’s not possible, rein in their spending.
If you’re paying off a mortgage, you might be enjoying the financial freedom brought about by the bank offered mortgage deferral programs in 2020. Although these programs have now come to an end, your mortgage provider may be open to refinancing your mortgage. In this, they may be able to offer you lower monthly payments by extending the amortization.
Home Equity Line of credit
A Home Equity Line of Credit, or HELOC, can be a good way for you to boost your retirement income when needed. Plus, it’s a lending option with among the lowest interest rates. However, bear in mind that many Canadians, especially older Canadians who may not have a fixed income, are seeing their HELOC applications denied. Lenders become more risk-averse in response to the COVID crisis.
CHIP Reverse Mortgage
The CHIP Reverse Mortgage is a long-term solution for clients experiencing a shortfall in their retirement finances. The Reverse Mortgage allows clients to access up to 55% of their home value in tax-free cash. And because they don’t have to pay what they owe until they leave their home, there are no monthly repayments. This freses up even more cash so they can live the retirement they’ve always planned. Although it’s up to you what you spend your money on. popular options include consolidating debt, renovating their home, or helping out a loved one with the down payment on a house.
Have your finances suffered due to the COVID-19 pandemic? Contact me today to ask how I can help make up for the shortfalls appearing in your retirement plan.