Getting Ready for Retirement and Being an Empty Nester
Those empty nester years before your formal retirement
As I continue my Life Stages articles I am now getting into unfamiliar territory. I am not an empty nester approaching retirement. In fact my wife and I have two young boys and are very busy still feathering the nest and caring for our little trouble makers.
Not to say I am totally inexperienced with this type of planning stage in life. Many of my clients are going through these changes and need advice and insurance solutions to meet their changing needs. So, the advice I dispense is good textbook advice from someone who has never had to make these decisions. That being said, there is a lot of common sense to financial planning, looking at the social and economic trends affecting Canadians. For those of you living these years, I hope you find this article useful. Please feel free to use the comment section below to add more value to the article for other readers.
What is retirement anyway?
Is retirement a mandatory prescribed age of 65 when you suddenly stop working all together and spend the next 10 years on the beach in Mexico? We all wish! No, retirement is different for everyone. In my circle of experience I have some clients who sold a business in their 50s and are now living half the year in Bermuda, while others retired with a government pension, but are still carrying a mortgage and continue to work full time right into their 70s.
Work trends show that most Canadians will not fully retire from their jobs at age 65, but continue to work either full-time or part-time for another 5 years. Even after age 70, many Canadians are able to earn income through various sources of “work” that they do. This could be a part-time service job that helps get them out of the house, which is more of a joy than a chore.
I think we are all rethinking retirement. The government of Canada certainly is, now that they have moved the Old Age Security pension age from 65 to 67. I think we are truly retired when we have the choice to work or not. When we can slow down from the rate-race of staying ahead of our creditors and paying the bills each month. When we have the freedom to choose the type and amount of work we want to do, not the job we have to do. When you reach this financial freedom you are retired in our modern world.
The kids still need a helping hand
Now that you’re an empty nester, are you really financially free from your kids. Mostly, but there are always those big things that keep coming up that children ask you for help with. It might be helping to pay for a wedding, or getting the down payment on a house together, or tuition when they want to go back to school (the first degree wasn’t good enough, now they want to go to grad school). It might mean helping out an adult child who is getting divorced and becoming a single parent.
As a parent of young-adult children, you almost need a separate emergency fund labelled “Kids” just for these sorts of situations. You want to avoid taking on more debt as you approach retirement. You also want to avoid cashing in your investments. Both of these things will prevent you from reaching that sense of financial freedom you seek to attain to be really retired (whether or not you work to earn an income). You children will always look to you for help, so it is a good idea to be prepared.
A focus on spending and preserving wealth
You investments need to change from accumulating wealth to preserving what you have. As you approach retirement you need to decrease your exposure to market risks – the chance your investment might go down drastically when the economy hits a rough patch. Regardless of market conditions you need to know that your retirement income will flow.
Moving assets from investments that are volatile equity-type funds to more income generating products is very important. There are many different investments that pay either an interest rate or a dividend regularly that can be a good source of income. You can also look at shifting some of your money into an annuity to guarantee a steady source of income each month.
This is a very important time to reduce your risks and set up plans to guarantee income will be paid for the rest of your life, no matter how long you live. Be careful too. Almost 50% of all retired couples in Canada will have at least one of the spouses reach age 90 or older. You need to have enough money to last for about 30 years of retirement, just in case.
Estate and Legacy needs come into focus
If it hasn’t been a concern of yours before, now is the time many Canadians begin to think about their estate and the legacy they will leave behind. Let’s look at the two pieces and how estate planning is different from legacy planning (from a life insurance perspective).
Estate Planning: A typical estate plan is about dealing with end of life taxation, minimizing the loss to the government in taxes that can be avoided or reduced, having a smooth transition of assets to your surviving heirs, and eliminating and conflicts and bickering over money that might come from the division of your estate. Life insurance is typically used here to offset government taxes with a very economical, tax-free, cash generating policy, and to pay for final expenses so the estate can be processed quickly and all the bills paid for (like the funeral and legal fees).
Legacy Planning: Your legacy goes beyond your estate. It isn’t just about preserving what you have, it’s about leaving something with a lasting impact to people or organizations once you’re gone. You might have a lot of wealth, and the legacy you give is an allocation of that wealth for the benefit of certain people or maybe a charity you support. If you are not wealthy, you can use a life insurance policy (permanent coverage like whole life insurance) to create a large amount of tax free wealth upon you death to be given to certain people or charities. Your legacy is all about structuring your wishes and funding them so your legacy, or lasting impact on the lives of others, will go on.
Who will care for you as you age?
This is a very important question you need to ask yourself. It really doesn’t matter what you have planned, time marches on and we all age. Sometimes aging is graceful, and other times it can be tragic. Needing help or care as you age is all too common. Most Canadians will need serious long term care for about 3 years of their life as they age (over 50% of all Canadians will require some form of long term care). Who is going to provide that care? How much will it cost?
Even though your children depended so heavily on you while growing up, I don’t think we can rely on them for our elder care. Just when you will be entering a long term care facility, them might be dealing with teenagers and trying to save for retirement. This is called the sandwich generation, when adult Canadians are caught between dependent children and now financially dependent elder parents.
If you don’t take steps to be financially prepared for the very high cost of long term care, then you will legally become the financial responsibility of your adult child(ren). That is a burden no parent wants to drop on their kids. One of the best ways to be financially prepared is to own a long term care insurance policy, that pays out tax free income for the cost of care when you need it. Your mid to late 60s is about the last time you can reasonably look at buying long term care insurance, because after that the price gets too high for retirees living on a fixed income.
Review your insurance plans now, before it’s too late
“Before it’s too late!” Sounds like a car salesman pitching a year end model clearance sale. At the risk of sounding like a high-pressure sales pitch, I just want to remind you that if you’re in your late 50s or into your 60s the clock is ticking. Your ability to qualify for life and health insurance might suddenly be gone if your health deteriorates, and the price for insurance is really jumping up each year you get older. The longer you delay in making decisions now, the more out of reach life and health insurance becomes.
Contact us today for a free, no obligation meeting with a life insurance broker in your area. Our brokers can show you how to plan in the empty nester years; for your estate; any legacy you want to give; and for your long term care needs.
The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about life stage pre-retirement and being an empty nester would be very much appreciated.