In this decade you’ll find you slow down a bit, which means your spending will slow down too. Still, you’ll want to make sure your finances stay on track. Your income may be limited, but there’s still lots you can do to keep your financial picture healthy.
Focus on what matters
In your 70s it’s natural to focus on the things that matter most (and that you can still do). As you simplify your lifestyle, you may find yourself deciding to sell the three-bedroom family house to buy a smaller house or condo, especially if you don’t want to deal with maintenance or stairs. This might generate up to several hundred thousand dollars for your retirement savings. If you need more, it may help to relocate to an outer suburb or smaller town.
Convert your RRSP
When you turn 71, the government forces you to wind up your RRSP and convert it into either a Registered Retirement Income Fund (RRIF) or an annuity. Or if you want, convert a bit to both.
RRIFs are similar to RRSPs, in that they are tax-sheltered accounts that can hold any type of investment, such as GICs, exchange-traded funds (ETFs) and mutual funds. The big difference is that with a RRIF, the government makes you withdraw minimum amounts from the account every year. That can increase the risk that the RRIF will get depleted while you’re still alive, says Jim Otar, a financial planner and researcher at retirementoptimizer.com. The required RRIF withdrawal rate in the year you turn 72 is currently 7.38% of market value, and the amount increases thereafter. While you don’t have to actually spend everything you withdraw from your RRIF, it complicates figuring out the right amount of steady cash flow you can afford to live on.
You can help reduce the risk of running out of cash by converting at least part of your savings to an annuity. With one lump-sum payment, you can get a regular income for the rest of your life, which can be a big stress-reliever for those worried about outliving their savings. Plus, most annuities pay more if you get them later in life, because the insurance company has to make fewer years of payouts.
The rates for annuities vary with interest rates — which are currently quite low — but right now a 70-year-old couple can get an income of 4.8% of the principal you put down for life, fully indexed to inflation, says Otar. If you’re happy with payments that increase by a set 2% a year — but are not guaranteed to keep up with inflation — you can bump the payout rate to 5.4% a year. Fixed-rate annuities with no inflation adjustment pay even more. Annuities are not well-suited for everyone, so investigate them carefully before you purchase one.
Plan your legacy
If you haven’t done so already, your 70s are a good time to plan your financial legacy. Make sure your will is up-to-date. If you own a business, draw up a succession plan to sell or transfer the business. You should also think about how to pass on financial assets that you might not need to heirs and charities while you’re still alive. Even if the amount of money you can afford to give away before your death is modest, it can have a big impact. A contribution of a few thousand dollars a year to a grandchild’s Registered Education Savings Plan (RESP) could make a big difference.
Setting up trusts or foundations can help you pass money to heirs and charities tax-effectively, says Tony Maiorino, vice-president and head, RBC Wealth Management Services. Many of these strategies used to be available only to the wealthy, but are now within reach of the middle-class. For example, a family trust can be a good way to give to children or grandchildren at lower tax rates, while continuing to allow you access to the principle if you need it, Maiorino says. You can lend money to your family trust, where it is invested. The interest, dividends and capital gains earned by the trust on those investments are distributed to your beneficiaries. But you still have access to the principal at any time by “calling” or taking back the loan.