Maintain Your Lifestyle in Retirement

It’s something everyone should think about. Travel may consume a lot of your resources early in retirement, while health care costs could become more important later on. As for how much you’ll need, some use the rule of needing 70 percent to 80 percent of pre-retirement income to maintain your lifestyle in retirement. You might need more or less than this, depending on your retirement vision, plus the amounts could vary as you get older.

How you want to live in retirement will dictate your costs. Start by identifying what you want to do in the various stages of retirement – stay close to home and your costs will be lower, but travel regularly or have expensive hobbies and you will need more money. Also consider if you want to provide some financial assistance to your kids. Identifying and quantifying the cost of these more discretionary expenses provides the basis for determining if you can maintain your lifestyle.

The purchase of that dream vacation property goes beyond the initial purchase price. Repairs and maintenance of the property, insurance and ongoing property taxes all add to the cost of ownership. Is it better to rent than own? Many retirees prefer to rent a condo or vacation home if and when they want to use it. This removes the costs associated with ownership, not to mention you are not tied to one specific location. If the vacation property is outside Canada, you need to know the tax and property ownership laws applicable in that location. This again will factor into the buy versus rent decision.

You may want to consider minimizing your taxes instead. By paying less tax, you increase your cash flow, which can mean needing to draw less from your retirement assets. Tax planning in retirement can include many things, from splitting CPP with your spouse to pension income splitting, from maximizing the value of tax credits (i.e., the Age Credit, the Pension Income Credit and the Medical Expense Credit) to minimizing any Old Age Security claw backs.

Protecting your retirement income can take many forms, including protecting your income from increases in the cost of living — that can eat away at the extra nest egg you’re trying to preserve for your heirs. You also want to protect your assets from unforeseen events. Make sure you have adequate insurance coverage for any health/medical challenges that may arise – especially disability insurance during your working years along with critical illness and long-term care insurance.