5 Biggest Money Mistakes When Retiring in Canada
Written by
Yaël Bizouati-Kennedy
Edited by
Gary Dudak
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According to experts, planning for retirement should start early and continue consistently, but with soaring costs and competing priorities, retirement prep has taken a backseat for many people. In addition, some mistakes along the way could add to the issue and create a less than desirable situation for this milestone.
In a LinkedIn post, Canadian money and financial coach, Adeola Monofi, explored some of the mistakes people make when planning for retirement in Canada and provided guidance on how to avoid them.
Procrastinating the Retirement Savings Journey
According to Monofi, starting their savings journey late is one of the most common mistakes people make, but it is a crucial factor in building a substantial nest egg.
“By starting early, you can leverage the power of compounding interest and allow your investments to grow significantly over time,” Monofi wrote in the post. “Make it a priority to start saving for retirement as soon as possible, even if it means making small contributions initially.”
Underestimating Retirement Expenses
Another common mistake is underestimating the expenses associated with retirement.
“Canadians often overlook the fact that their spending patterns may change during retirement. Health care costs, travel, hobbies and leisure activities can significantly impact your retirement budget,” she wrote, adding that it’s important to consult with a financial advisor who can help you create a realistic budget that aligns with your retirement goals.
Sebastian Jania, owner of Alberta Property Buyers, echoed the sentiment, adding that one of the biggest mistakes when retiring in Canada is not truly considering the cost of housing.
“Canada has some of the highest real estate prices especially when looking at cities such as Toronto and Vancouver and comparing them to the median income,” he said.
Another expense Jania said retirees tend to underestimate is the cost of healthcare.
“This specifically refers to not a monetary cost, as most healthcare expenses are covered through taxes, but rather the cost of not having access to immediate health care.”
Relying Solely on Government Benefits
As Monofi noted, many Canadians mistakenly believe that government benefits will be sufficient to support their retirement lifestyle.
“While programs like the Canada Pension Plan (CPP) and Old Age Security (OAS) provide valuable income, they may not cover all your retirement needs,” she wrote.
In turn, depending on these benefits can leave you financially vulnerable. Monofi recommended diversifying your retirement income sources by saving and investing in registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs), real estate, permanent life insurance and other investment vehicles suitable for your circumstances.
Neglecting a Comprehensive Estate Plan
An estate plan is essential for ensuring your wealth is distributed the way you intend it to be. Monofi warned that neglecting to create one can lead to unnecessary taxes, legal complications and family disputes.
She wrote, “Consult with a professional estate planner to develop a comprehensive plan that includes wills, power of attorney and healthcare directives to protect your assets and provide for your beneficiaries.”
Setting and Forgetting Financial Plans
According to Travis Forman, a portfolio manager at Harbourfront Wealth Management, forgetting financial plans is one of the biggest mistakes Canadians make.
“It can be easy to ‘set and forget’ them once they’re in place, but no financial strategy should be left in motion without review and active management. You need to make sure they’re still working for you,” said Forman.
Specifically, he recommended investing according to your long-term goals in addition to regularly checking back and reviewing your financial plan.
“Investing is a long-term game, and when the markets turn, the reward can make holding your strategic patience worth it during periods of downturn,” he noted.
Another tip is to diversify your portfolio with alternative investments, as these tend to be uncorrelated with traditional assets, andd can help prop up portfolio returns during times of economic uncertainty, including when the stock market is underperforming.
Finally, don’t forget to consider insurance as an investment.
“Insurance is often believed to cover your financial obligations ‘just in case,'” Forman added. “This is just one use, though. Instead of buying insurance in a traditional sense, Canadians can consider purchasing an insurance policy as an investment tool to help maximize the size of their estate.”
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