Freedom 55? Preparing for retirement

(NC)—You're "50-ish", and retirement is closer than you think. How do you plan wisely?

According to chartered accountant Frederic Gregoris in Mississauga, it's never too late to start saving, so review both your spending and saving habits.

"How much money you will need depends on your lifestyle and expectations. For most people, 'Freedom 55' doesn't exist, and many have done little planning at this stage. Although ages 50 to 60 are peak earning years, people are still coping with basic living expenses, including university costs for children, a mortgage and other overheads that limit their ability to save."
"Plan to retire gradually if you can," advises Don Beach, a retired chartered accountant living in Greenwood.

"This cushions the impact of retirement – both financially and emotionally. When you retire depends on your individual situation, but start planning for it well in advance. You may also want to develop a hobby that can grow into a home-based business as a source of retirement income. A home-based business offers tax advantages and lets you deduct some expenses while you are still employed, and later in retirement."

Savings Strategies
"Live within your means during your working years," continues Beach, "and avoid a maxed-out credit card. Avoid non-deductible interest on personal expenses. Be tax conscious. If taxes can be deferred, this gives you more funds to save and invest over your working life.

"While RRSPs are good retirement savings vehicles, the new Tax–Free Savings Account (TFSA), introduced in the 2008 budget, may become just as popular. Just remember that it's not available until next year.

"An RRSP allows you to deduct your annual contribution, but it can become costly when you retire and start withdrawing it at age 71. Then, you're adding to your taxable income, which will likely put you in a higher tax bracket and may even prevent middle-income earners from getting income supplements like Old Age Security," explains Beach.

"With a TFSA, you can contribute up to $5,000 annually. Although you do not get a deduction for your contribution, no tax will be levied on future investment returns or withdrawals."

Invest Wisely
"As part of your savings strategy, learn to be a savvy investor. You're responsible for your investments," says Gregoris.
"It's important to minimize taxes on your investments and create more after-tax cash flow. Interest, dividends and capital gains are taxed at different rates. A CA can explain the tax consequences of your investments.

"Be aware of your aversion to risk, and be realistic in your expectations of returns – there is no such thing as the golden apple. If you are investing with a financial adviser, look at his/her fee structure. Is it a flat fee or one based on performance? Should you be investing in high cost mutual funds?" asks Gregoris.

An excellent investment is your house – it's an asset that can give you a significant tax-free return. Try to pay down your mortgage, and put the mortgage interest you're saving into an RRSP. Or, invest in an RRSP and put the tax refund toward the mortgage.

- News Canada