RRSP Q&A: Will I spend more earlier in my retirement than later? - MoneySense

RRSP Q&A: Will I spend more earlier in my retirement than later?

Answers to your RRSP questions.


From February 16 to 19, 2010, MoneySense.ca’s top financial planners are answering your RRSP questions. For the full list of questions answered — or to submit a question of your own — click here.

I am submitting this question because there is one thing that seems to either be taboo or nobody wants to talk about. Financial planners talk about how much it will cost to fund your retirement until 90 (life expectancy) but the tragedy of life is we cannot expect to be in the same condition at 90 as me being in the ripe age of 42. The question then is this: Do we spend less as we get older as we are not able to do the things we wish to do that cost money, or do medical expenses and home care take more of our savings and increase our spending? Should I spend more in early retirement and enjoy my new freedom or keep an even yearly spending hoping health and wellness are consistent from 65 to 90? —Murray

This is a tough question.  I often say to my clients that if they could tell me what the future holds, I could run their financial numbers with a lot more accuracy!  Based on my experience, people do tend to spend less in their later retirement years on travel, entertainment and hobbies.  However the cost of medical and health care can rise significantly in those years and usually does.

Have your advisor run retirement projections that show a variety of different spending scenarios at different ages.  Some people are ok with taking some risk with their future security and adopt a “let the chips fall where they may” approach to life.  Others are very concerned that they will have the option for the highest quality (and often very expensive) care if they need it. The best way to figure out what camp you fall into is to take a hard look at the numbers and consider how you feel about the different outcomes.  Only you can figure out which scenario gives you the most peace of mind.

Next question: How should my portfolio be balanced?

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