During the decade from age 60 to 70, many important financial decisions are often made almost simultaneously: retirement, providing financial assistance to loved ones, or selling significant assets. This period marks a major transition, as priorities change and generally involve balancing security, freedom and quality of life. Since certain decisions can have long-term effects on disposable income, taxes, the longevity of your capital and financial flexibility, it is recommended to approach them with a big-picture perspective rather than making one decision at a time.
Here are some examples of common financial mistakes made during this crucial period:
Applying for government retirement benefits without first simulating their impact
Whether on instinct or out of caution or fear of “leaving money on the table,” some people apply for benefits from the Quebec Pension Plan (QPP) and/or Old Age Security (OAS) without fully assessing the most advantageous time to do so. A pension started before age 65 is permanently reduced, which can result in a significant loss of income if the retiree lives a long life. Conversely, delaying the application can increase guaranteed income later in retirement, which becomes particularly relevant when life expectancy is high, when personal investments can cover the early years, or when it would be advisable to better protect against the risk of depleting one’s savings. The real mistake, therefore, is not necessarily claiming benefits early, but doing so without comparing the different scenarios and without assessing the long-term impact of each on disposable income, taxes and financial flexibility.
Withdrawing funds without an overall strategy
In addition to choosing the right time to apply for government pensions, the order in which different sources of income are tapped can also have significant implications. Withdrawing funds from an RRSP or RRIF too quickly—without taking into account the TFSA, non-registered investments, and tax implications—can result in a higher tax bill or reduce long-term financial flexibility. For professionals who are incorporated, funds held in the corporation must also be factored into this planning: when should dividends be withdrawn, and how can the overall strategy be optimized to maintain a certain degree of flexibility?
The challenge, therefore, is not only to determine how much to withdraw, but also to decide in what order to do so in order to optimize disposable income, minimize tax liability and preserve capital over the long term.
Underestimating longevity or overestimating the need for caution
Sometimes people plan for retirement as if it were going to last 10 to 15 years, when in fact it could extend to 25 to 30 years—or even longer. A 65-year-old may live much longer than expected, which makes irreversible decisions even more important. Conversely, some retirees have sufficient assets to maintain their standard of living but limit their spending for fear of running out of money. The goal is to strike a balance between enjoying one’s wealth today and preserving long-term financial security.
Helping your children buy a home without the right strategy
Wanting to help your children buy their first home is a common and entirely legitimate goal. The mistake isn’t in wanting to help them, but in doing so without evaluating the best way to structure that assistance. A gift, a family loan, an advance on an inheritance, co-signing a loan, contributing to the down payment, or helping them use certain plans can have very different implications for taxes, liquidity, fairness among children, and the parents’ financial security. For this assistance to be truly effective, it’s essential to compare options, clarify expectations, and ensure that it fits into an overall strategy, without undermining the parents’ retirement plan.
Needlessly paying taxes in retirement
Certain decisions—such as withdrawing large sums from an RRSP or an RRIF in a single year, selling a significant asset or receiving substantial dividends from a corporation—can increase taxable income and result in a partial or total clawback of Old Age Security (OAS) benefits. With proactive planning, it’s often possible to spread withdrawals over several years and reduce the overall tax impact.
To live each moment to the fullest
This period, from age 60 to 70, is a pivotal stage because it involves many financial decisions that may seem one-time events but whose effects will be felt for many years to come. That’s why it’s essential not to go it alone or make decisions on a case-by-case basis. Having experts to guide you and relying on a clear, personalized and regularly updated financial plan allows you to compare scenarios, anticipate the impacts and make decisions that align with your goals, your family’s situation and your future financial security.
Take the time to discuss your financial plan and your options with your fdp Wealth Management Advisor: it’s the best way to ensure you make sound financial choices and optimize your decisions.
