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By Paul Delean
The Montreal Gazette
Retirement Section
Monday, March 28, 2005
One thing Olaf Luz would do differently if he had a second chance would be to contribute earlier to his RRSP and his wife's spousal RRSP
Olaf Luz's retirement got off to a bumpy start. The registered retirement savings plan he'd been building up since age 40 lost about $30,000, roughly 15 per cent of its value, when stock markets went into a two-year tailspin in 2000.
Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “While it's true that some expenses do go down when you retire, you may end up spending more on things like leisure and travel, so the bottom line may not be terribly different.”
Luz had just left his job as a manager at an alloy fabrication plant in St. Laurent, his employer of almost 20 years.
"That was a bit scary," said Luz, now 69. "At one point, I considered cancelling my RRSPs, taking the hit on taxes and just putting the money under my mattress. But my adviser said: 'Hang in there, it'll come back.' And it did. I've recuperated everything I lost."
Other than that early setback, Luz said retirement so far has been a walk in the park.
It could be because he and his wife, Trudy, have done a lot of the things experts recommend to make the transition smoother.
They had hobbies and a country place to keep them busy.
Their off-island home had no mortgage. They paid off credit cards promptly. They had modest expenses (roughly $18,000 a year) and no debt. They got rid of the second car.
Though neither receives a company pension, each has an RRSP. Luz contributed to a spousal plan for Trudy, 66, who stopped working five years before him.
Before retiring, Luz gradually cut back his workweek. And he still goes back on occasion, as a consultant, making some extra money and helping out his former employer.
They were never big spenders and haven't suddenly changed their lifestyle. They still seek bargains when they shop. Luz renovated the kitchen himself. Trudy rarely uses the dryer to save on energy costs. They considered selling their house and buying a condo, but decided against it for now, after calculating it would cost about $2,000 more a year than staying put.
"You can get a lot of things done for you - snow removal, grass cutting - for $2,000," Luz noted.
The one thing he would do differently if he had a second chance is start contributing earlier to the RRSPs.
"I started around age 40," he said. "I would have had more if I'd started earlier. When you're young, you're hesitant to get into it."
Starting Trudy's spousal plan earlier also would have been a bonus, he said. That way, they could have evened off their retirement income, the most tax-efficient scenario. As it is, his RRSP is twice as large as hers.
Universite de Sherbrooke economics professor Louis Ascah, 58, says a little strategic planning can make a big difference in retirement, which is why people should start looking into the options decades beforehand.
"Between 30 and 40, you should have a rough idea of what you're going to do. At 50, you should be crunching some numbers. It may seem boring, but you're not helping yourself by putting it off."
Ascah, who conducts information sessions on retirement planning for university personnel, said many people have unrealistic expectations about future lifestyle.
"I think it'll be a disappointment for a lot of people. Studies indicate middle-class people won't have as much in retirement as they want to have."
The maximum Quebec Pension Plan payment is now about $10,000 a year. Federal old-age security pays about $5,600 a year at age 65. Beyond that, there are company pensions, but they cover only about 40 per cent of the Canadian workforce (and 31 per cent of non-government employees).
RRSPs and other accumulated wealth (including real estate) also are key pieces in the retirement puzzle.
What choices to make and when to make them isn't always obvious, even to those who've done some homework.
If you earn more than $61,000 a year, old-age security benefits start getting clawed back.
With real estate, it can be tempting to sell a principal residence and rent, but you might be no further ahead. Money generated by the sale, if invested in fixed-income products, could be taxed to the hilt, whereas a principal residence appreciates tax-free. On the other hand, you may no longer want the hassle of maintaining a property when you get older, and willingly switch to something smaller and/or less problematic.
Investment performance is another wild card. A period of sustained weakness can throw off financial projections, creating a need for heightened saving, riskier investments or even postponement of the anticipated retirement date A Canadian man who makes it to age 60 lives on average another 19.59 years, and a woman another 23.72 years, so it's important to keep updating the math.
"In my calculations, I add five years (to average life expectancy), just to be on the safe side," financial adviser Adrian Mastracci said of Vancouver based KCM Wealth Management.
Though it's often suggested retirees need roughly 70 per cent of their former annual income to maintain their lifestyle, Mastracci said he doesn't put much stock in one-size-fits-all figures.
A better way is to tabulate annual expenses and calculate how much income is required to adequately cover them.
"While it's true that some expenses do go down when you retire, you may end up spending more on things like leisure and travel, so the bottom line may not be terribly different," he said.
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