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How to avoid financial struggles in old age

Old age often comes much faster than we able to prepare for it emotionally, physically, and financially. In this article, we will not talk about the need to eat healthy, exercise regularly and overall take care of your health. Instead, we will focus on how to make our old age secure and comfortable in terms of financial needs. How to avoid becoming trapped, counting on social aid and later realizing that this monthly benefit is enough to last 10 days? How to avoid becoming a burden to your children in old age?

Few people want to think about retirement, which many associate with the end of active life, illnesses and loneliness. In addition, there is an opinion that it is simply impossible to plan personal finances two or three decades ahead of time.

A lot of people continue to rely on assistance from the government, believing that the Canadian pension system should ensure the minimum living standards for pensioners. Keep in mind that the amount of these payments depends on many factors: the total period of residence in Canada, annual income, age of retirement, as well as others. You can calculate it and remember to check with your accountant at the time that pensions are taxed, which can further reduce the final amount of payments. There is a high probability that these government payments will not be able to fully meet your financial needs in old age.

Who if not you?
The fact remains that the earlier you realize that you must take your future into your own hands, the greater the chance you have to maintain the current lifestyle in retirement and catch your well-deserved break.

Today, financial experts are talking a lot about the need for citizens to develop responsibility for their own future, and the Canadian government is also calling for it. In Canada, special preferential investment accounts and pension plans have been operating successfully for a long time, which allow citizens to gradually accumulate and invest capital in the expectation of receiving passive retirement income. This allows you to secure not one, but three types of pensions at once: public, private-collective at work (corporate) and private-individual – through the opening of personal retirement accounts, which in Canada are called RRSP (Registered Retirement Savings Plan) or TFSA (Tax-Free Savings Account).

What should be the first step? Any long-term investments should be carefully planned. At the same time, it is necessary to take into account many factors: the profitability of various assets, inflation, the timing of investments, and much, much more — which can be quite a difficult process for a person inexperienced in investment and financial planning to do independently.

Such a plan will take into account:

  • your goals, for example, “receiving passive income in 20-30 years”;
  • your financial situation today;
  • current monthly income;
  • current debt obligations (for example, a mortgage loan);
  • assessment of your current capabilities (how much you can save on a monthly or quarterly basis);
  • your attitude towards the risk associated with the investment of various assets (willingness to risk a part of investments in order to achieve greater profitability of your investments in the future)
  • possible macroeconomic risks on your financial “horizon”.

Here are some examples of such contributions and savings:

  1. Bank account deposits – Something understandable and familiar to most people, and is generally associated with reliability. Low yield is a negative aspect, being approximately at the level of inflation, which makes this kind of investment not entirely profitable in the long run.
  2. Cumulative life insurance – The essence of this type of insurance lies in the fact that for a large amount of time (up to 25 years) you pay regular, individually set contributions to the insurance company, so that by retirement you will receive a large amount at once, or have that split into smaller monthly amounts. The money accumulates in your account, including your investment income received by the insurance company as a result of investing your funds into various assets.
  3. RRSP and TFSA accounts work on a similar basis, but are more conservative in terms of non-taxable contributions and types of assets for investment.

How much money do I need to save? 

The needs are individual: someone may like to travel actively in retirement, and someone else may want to live quietly outside of the city. In addition, with age, some previously significant fixed costs can become less, or even disappear, such as: mortgage payments or loans, school expenses, childcare, or regular expenses associated with daily work (i.e. transportation, office clothes, and others). At the same time, other expenses increase, for example: medical treatment and medicines. In any case, according to one of the average approaches, in order to maintain the standard of living that you have today, upon retirement, the size of the monthly pension should be half the salary achieved by the age of 40.

Do you want to live with dignity when you are old and can’t or don’t want to work anymore? Contact the experts! For example, all insurance companies today offer free pension planning services. And an experienced financial specialist will help you draw up a balanced strategic plan and manage your finances so that you do not have to be in-need when retired.

Marina Neiman-Fishman, Insurance Advisor

From the Editor: This month marks exactly a year since we opened the section “Financial Health”. Finance is an integral part of our lives. If our finances are not in good standing, regular exercise and meditation are unlikely to help, and there simply won’t be enough money for healthy eating, and traveling “for health”.

Therefore, we are grateful to Marina Neyman-Fishman for her educational work in the field of financial planning; insurance – the means to protect yourself, your family and your business from the unforeseen; pension programs, etc.

We are grateful to Marina for her active participation in our free informational seminars, and for her interesting and useful articles, written in close collaboration with our editorial board. We look forward to further collaboration!

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