The Learning Centre:
3 ways to make your money work harder for you in retirement
The sudden shift from ‘working income’ to ‘pension income’ can take a little getting used to, even with a generous pension plan in place.
That’s where having a financial action plan in place can prepare you to not only take it all in stride—but make your money work harder for you in retirement.
ACTION PLAN #1: Create a budget.
Yes, it’s the simplest piece of financial advice that everyone should follow, yet so many forget about. Being aware of your monthly expenses going out (versus pension income coming in) is the easiest way to keep your retirement spending on track. More importantly, it will give you an idea of your monthly room for savings—because being in retirement doesn’t mean you should stop socking away savings.
Use our budget calculator to get started on ACTION PLAN #1.
ACTION PLAN #2: Put your savings to work for you.
Once you’re comfortable with your budget, put a chunk of that monthly savings into something that will generate interest—such as a Tax-Free Savings Account (TFSA). The great thing about a TFSA is that it easily enables you to create another source of potential investment income, and it’s all tax-free.
If you’re looking for an efficient way to contribute to your TFSA, consider setting up a Pre-Authorized Contribution plan (PAC).
Whether it’s $50 or $500 a month, the benefit of a PAC is that it is effortless and automatic. Once you set it up, you don’t have to worry about making your contribution.
Another perk of setting up a PAC is that you can benefit from an investment technique called ‘Dollar Cost Averaging’. What this means is that by making a series of smaller contributions over a period of time, you’ll be paying, on average, a lower cost for a fund—compared to someone who makes one lump sum payment. The person making the lump sum contribution won’t benefit from the advantage of purchasing the fund at times when the cost is lower, as the price of funds tends to fluctuate over the course of the year. At the end of the day, Dollar Cost Averaging has the potential to give you greater returns.
ACTION PLAN #3: Look for ways to minimize taxes and maximize government programs.
If you want to pull out all the stops to ensure maximum cash flow in retirement, take advantage of smart options available to you such as income-splitting. This is where the top income provider in a relationship can allocate some of their pension income to their spouse in order to minimize the tax they’ll have to pay on that income. After all, you’ve paid enough taxes all your working life —why not look for ways to minimize the taxes you have to pay now that you’re retired.
Furthermore, by income-splitting and effectively reducing your pension income, you may then be in a better position to maximize the amount of Old Age Security (OAS) and/or Guaranteed Income Supplement (GIS) you receive.
You’ve got retirement questions? We’ve got educator-specific answers!
After all, working exclusively with the education community since 1975, we’ve helped thousands of educators plan for their first day of retirement and beyond. Let our team of financial specialists work with you to develop a financial action plan based on your specific needs and goals so that you may live a long and financially prosperous life in retirement.
Have one of our financial specialists contact you to make YOUR money work harder in retirement.
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