Stressed about savings? Don’t forget low-hanging fruit

Rob Carrick

Things that unite us as Canadians: harsh weather, rugged geography, a love of hockey and a sinking feeling that we’re not saving enough for retirement.

Worrying about saving for retirement unites the generations, according to the results of a recent study commissioned by BNN, CTV and Standard Life. Pre-retirement, almost six in 10 Canadians have at least some degree of concern they’re not saving enough for their senior years. Post-retirement, four in 10 people are worried about out-living their retirement income.

A two-pronged prescription for this retirement savings anxiety is to save more in your working years, but also to become better informed. Experts say that many Canadians aren’t as badly off as they might imagine when it comes to saving for retirement and, for those who do have a savings deficiency, there are measures that can be taken even after your working days are done.

Easing your worries about retirement saving could be as simple as getting a handle on the benefits you’ll get from the Canada Pension Plan, Old Age Security and the Guaranteed Income Supplement. Malcolm Hamilton, an actuary at Mercer Inc., said these benefits together could deliver more than $30,000 combined to a retired couple.

“It’s a modest amount, it’s not extravagant and it’s not going to give you southern vacations,” Mr. Hamilton said. “But the stories about seniors eating dog food and living in houses they can’t afford to heat are nonsense.”

Ted Rechtshaffen, president and CEO of the advisory firm TriDelta Financial, said a significant number of people will find their retirement savings bolstered by inheritances from their parents. He said there two factors behind this transfer of wealth – the frugal lifestyle of the older generation, and the staggering increases these people have seen in the value of their homes over the past several decades.

“There won’t be a meaningful inheritance for everyone, but there are an awful lot of people who are going to see a few hundred thousand dollars,” Mr. Rechtshaffen said.

One final point to assuage the money worries of pre-retirees: According to Mr. Rechtshaffen, your expenses in retirement decline as you age. What about the beaches and villas that loom so large in retirement-oriented marketing by the financial industry?

“Most Canadians don’t live that lifestyle,” Mr. Rechtshaffen said. “Even the ones who have the money.”

If you still have money worries while in retirement, going back to work at least part time is worth some thought. Your next step should be to see whether you can cut your living expenses.

Mr. Hamilton noted that most seniors tend not to live an extravagant lifestyle, which suggests there won’t be any obvious ways to reduce spending. A not-so-obvious option is to look at selling your home.

Property taxes, utilities and basic maintenance costs are constant when you own a home, and then there are periodic big expenditures such as replacing the roof. Downsizing to a smaller home or renting is one way to reduce housing costs.

It’s not a popular option, however. In the BNN-CTV-Standard Life survey, 69 per cent of the 536 people surveyed late last year and early in 2010 said staying in their home was very or somewhat important in retirement. You have a couple of options if you prefer to stay in your home, Mr. Rechtshaffen said.

One is to use your line of credit to cover expenses you can’t manage with your regular income. Rather than paying down what you owe as the months go by, you’ll simply make the required interest payment. Then, when you eventually sell, you’ll use the proceeds to pay off the credit line.

Be sure to arrange a line of credit before you retire, even if you have no intention of using it. It’s much easier to set one up when you’re working than when you’re retired and living on a fixed income. The lowest borrowing costs can be found with home-equity lines of credit, which are secured by the value of your home and can cost a few hundred dollars to set up.

Drawing down on a line of credit is an informal version of a product called a reverse mortgage that allows people to convert part of the value in their homes to cash that can be used for any purpose. Mr. Rechtshaffen’s view on reverse mortgages: “I’m not a fan of them at all because fees are high and rates are high.”

According to the BNN-CTV-Standard Life survey, the top retirement lifestyle aspiration was not to be a burden on one’s family. Still, Mr. Rechtshaffen said that asking family members for financial help is one option for overcoming a financial shortfall in retirement. It may be that you’ll be able to repay the assistance through an inheritance.

Whether you’re retired or years away from leaving the work force, Mr. Hamilton suggested seeing a financial planner if you have any concerns about your savings. Finding advice that isn’t tied to product sales can be a challenge, he warned. But the up side is that you may well get some good news about your retirement savings.

“There are way more people who are concerned than need to be.”