First off, lets discuss the scary facts about retiring Canadians.
- According to a 2019 TD Bank Survey, 64% of Canadians (nearly two-thirds) expect to work in retirement due to lack of savings.
- 1 out of 3 retired Canadians are still working, according to 2018 Statistics Canadas Survey, up from 1 out of 5 retired Canadians working in 2015.
- Cost of living in 2019 increased by 1.9% from 2018 (and is increasing every year).
These statistics alone, should worry all working-class citizens as of what the future holds.
Let’s now explore the reason why seniors are working in retirement.
In 2017, 1 out of 3 Canadians were still working in comparison to 1 out of 5 in 2015, according to Statistics Canada. This is approximately a 13% increase in 2 years alone. These numbers continue to increase every year.
There are 3 reasons why seniors continue to work during retirement: 1) higher life expectancy 2) to keep busy or out of passion 3) financial need. The last point is concerning because seniors are forced to work after a lifetime of working due to essential needs.
Another statistic relating to that is, “Out of all working seniors, older than 60 years, nearly 49% worked out of necessity to support themselves or their family. 28% of seniors still worked after 70 years of age, out of necessity.
Why is that you ask?
Well, Canadian seniors are working past retirement because they plan their retirement late in life and don’t have any savings or investments to support them in retirement, especially with the economy rising.
Put into other terms- imagine you are forced to work at 70 because you do not have enough savings to survive for another 20 years or so. That is scary!
What’s your retirement strategy?
Many people have the mentality that they will work towards paying off their home mortgage so that they can start saving money afterwards. Although this seems like the reasonable thing to do, it potentially takes away from retirement savings which makes it a counteractive strategy.
Canadians qualify for collecting CPP (Canada Pension Plan) at 65. Or 60 at a reduced rate. The current maximum CPP benefit is just over $13,000, which may not cover everyone’s lifestyle or unplanned expenses.
Let’s talk about Employer Pension Plans.
Most employees prefer Defined-Benefit pension plans, which are the plans of choice for unions since they provide a predictable amount of pension at little or no risk. Unfortunately, these plans are dying in the private sector because employers are not willing or able to take much risk- DB plans are expected to be gone by 2026, according to Statistics Canada.
It is reasonable to say that just based off these few discussions, the number of Canadians that will not be able to afford retirement is growing.
Now, let’s discuss other options to secure retirement funds.
- Let’s assume you have your house paid off- the first option for you is to sell your house and live off that money…but then you don’t have your own house.
- Second option is to use a reverse mortgage and stay in your house and use that money for safe and smart investments.
- The third option is the most lucrative one- to purchase a rental property and have passive income to support your retirement.
For some insight, let’s look at HELOC (Home Equity Line of Credit)
Instead of paying off your current home mortgage, it is recommended to make your mortgage tax efficient by converting it into a tax-deductible mortgage. This is where HELOC comes into play. HELOC is used to invest in safe investments such as RRSP’s, investment properties or a combination of both.
I’m sure I’ve caught your attention and you’re now asking; How can I do this?
With a Home Equity Line of Credit, a financial institution lends you money using your home as collateral. Other home loans let you borrow a fixed amount that you pay back over time. HELOC gives you access to a larger amount which you can use as needed.
Those interested, can borrow any amount up to your credit limit. Then you can pay off all or part of the balance back, just like paying your credit card bill, and borrow more money as needed, just at a very low interest rate.
All HELOC’s have a “repayment period” of interest only payments. Where you can also take out a HELOC on a home that’s fully paid off.
Other advantages are that HELOC comes with a lower interest rate (Prime + small percentage) compared to other types of home loans, and you can pay off the full amount anytime without any penalty.
Retirement strategies need to be discussed more openly as there is no shame in it. Those starting their road to retirement should do it as soon as today.
Call or email Exit Excel Realty at any time and we’d be happy to discuss your options and connect you to a trusted professional.