Pattie Lovett-Reid: Tips for retirement savers late to the game
In an ideal world, you would start saving for retirement in your 30s and 40s. However, in today's environment, for many it simply isn’t an option.
You wake up one day and find yourself in your 50s and wonder if it is simply too late. I would argue it is never too late.
If you are in your 50s, you could easily have 15 years or more to save. Your children may be on their way to independence, your income level is likely at its high point in your career and you have unused contribution room in your RRSP. Those years of tax-free savings and tax refunds can go a long way in funding your retirement, if you have the discipline to save and don't give up. When it comes to building a portfolio, the good news is you still have time on your side. I would lean towards good-quality stocks that have a history of paying and increasing their dividend and are leaders in their field.
Once you hit your 60s and 70s, it does become a little more difficult to play catch-up. The danger is you might take on more risk hoping for the big win. I would caution against this. Instead, explore options to create an income stream. An insured annuity provides a life-insurance policy with an annuity, or income stream, for life. It is an effective product for people who are in good health and are worried about outliving their money. Life annuities purchased outside of a registered plan receive favourable tax treatment, as only a portion of the income is taxable. A common concern with annuities is premature death, with little money being left for your family. However, with a life-insured annuity, your capital is protected and the life-insurance component provides an estate for your heirs.
Some people at this stage of life, late in their careers and approaching retirement age, may be asset rich and cash poor. If that’s the case, a reverse mortgage is worthy of consideration.
Reverse mortgages are often feared because customers are concerned the bank could take ownership of the home, according to HomeEquity Bank. Furthermore, they are worried about equity erosion, owing more money than the house is worth, and harbor the inaccurate fear that if one spouse dies, the other will have to move out.
But if you qualify, you can borrow up to 55 per cent of the value of your home (the amount varies depending on factors like the type of the home, your age and your gender).
You must be 55 or older and the home must be your primary residence. Before a reverse mortgage is approved, the borrower will be required to obtain independent legal advice and a home appraisal. In some cases, they will also have to have a discussion with their financial advisor or even their family.
Statistics from HomeEquity Bank show the average customer for reverse mortgages is 72 years old, the average mortgage size is $170,000, the average loan-to-value is 30 per cent, and the average credit score is 750.
The harsh reality is that if you haven't been saving, you may have to work longer, spend less and budget more aggressively. But before you give up on your retirement dreams, look at all of the options available to you. It may not be too late, after all.
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