Pattie Lovett-Reid

Chief Financial Commentator, CTV

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Living in retirement can be a joy, but ensuring that your money lasts can also be a struggle. Here are three things seniors should keep in mind.

1. Don't underestimate your longevity

There are wildcards as we enter retirement that we may never fully plan for, but that doesn't mean we shouldn't try. In terms of longevity I would err on the side of caution and plan to 100 years old.

With advancements in medicine, nutrition and exercise becoming a focal point for so many people, you can reasonably expect to live much longer than you once thought. Your assets that help you enjoy this longevity include your social assets – family, friends and giving back to the community, physical assets by way of a healthy body and mind and of course financial assets that let you spend, save and give as you like.

The dictionary definition of retirement is “to cease to work,” but retirement is evolving. People are working longer, travelling more and furthering their education in their golden years. As you grow older, your money needs to grow. Sitting in cash or fixed income investments will not grow your retirement funds and you could find yourself losing money after taxes and inflation. You need some exposure in the markets in good quality stocks that not only pay a dividend but grow that dividend over time. 

2. Generosity can destroy your nest egg

A recently-widowed woman called me to chat about how her husband prior to his passing had promised their children an education overseas. When the promise was made, the ability to fund an education of that magnitude seemed feasible. It is a very different story today.

I suggested she be honest with her children. That was then, and this now: While her children can take out student loans, she can't borrow money for her retirement.

It is a tough conversation for sure – who doesn't want to be generous with their family? But it is a conversation that needs to happen. You give away too much too soon and you run the risk of outliving your money. This doesn't mean you can't help, but do so in moderation. No one is going to care more about your financial future than you.

3.  Wait before you buy an annuity

I like annuities, which provide guaranteed income for life in exchange for a lump-sum payment. We will all have fixed costs in retirement and in order to replace our employment income to cover those costs an annuity might be the answer. However, we have been in a low interest rate environment for an extended period of time and payouts are impacted by interest rates. That would suggest current payouts are ridiculously low.

But I wouldn't ignore this strategy altogether. I just might consider delaying the purchase. Sure, you will receive payouts for a shorter period of time and you likely will still need money in the markets to sustain your lifestyle. However, when the payments are made they will be larger and that could protect your cash flow. That would come at a time in your life when healthcare costs are escalating faster than you anticipated.

Experts say the sweet spot is age 70, and that rather than buying in a lump sum you might consider dollar cost averaging over a three- to five-year period. That might help mitigate interest rate risks. This doesn't mean you shouldn't consider an annuity at age 65; you just need to expect you will have a lower payout for a longer period of time.

As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on Twitter @PattieCTV