A retired lifestyle is within reach for parents, if they can make a few sacrifices

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by TD Insurance

Personal Finance Family Finance

Parents can plan their retirement years before it happens, giving them the opportunity to retire early or simply live a retired lifestyle

It's important to start a retirement plan as soon as possible, not two years before you hope to live a retirement life. It’s important to start a retirement plan as soon as possible, not two years before you hope to live a retirement life. Photo by Mike Faille/National Post artwork files

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In an ongoing series, the Financial Post examines personal financial questions related to life’s major milestones, from marriage to retirement.

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pension. It’s the goal we all dream of reaching one day. We go cycling, travel more and live a life of leisure. Still, for some, retirement may seem like a distant dream that will be a nightmare to achieve.

The median retirement age in Canada continues to rise, reaching 64.4 years last year, according to Statistics Canada. That’s a four-year increase since 2001 and is just the average retirement age. As a self-employed person, that figure rises even higher until the age of 68.

Early retirement? Forget it, especially if you have kids to support. And you will support them, often much longer than your parents did in the past. It costs about $257,000 to raise a child over the age of 18 in Canada, according to a child cost calculator from The Measures of a Plan. That’s about $14,750 a year.

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But what happens when that enormous financial burden disappears? It’s something that parents can plan for years before it happens, giving them the opportunity to retire early or just live a retired lifestyle. And yes, such a lifestyle is a possibility, says Hamza Bahadurali, senior investment advisor and portfolio manager at BMO Private Wealth.

“When there are no more kids at home, you have extra cash flow because you’re not financing their lifestyle or expenses, and you have more time to spare,” he said. “And as you start looking at a retirement lifestyle, there are two things to consider: what are your goals and objectives… and what do I need financially to make it happen?”

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If there are no more children at home, you have extra cash flow

Hamza Bahaduralic

Canadian parents can assume that a retirement lifestyle will cost them too much. But Bahadurali said that’s why they need to make a plan to see if it’s feasible. On the one hand, you don’t just dive into such a lifestyle. On the other hand, if it’s something you’re interested in, don’t write it off either.

“The biggest recommendation would be to hire a financial planner or investment advisor to help you through this process,” he said. “If you hire a financial professional… they can really give you a 360-degree view of where you’re going and what your future might look like.”

You also need to prepare your kids, said Jeet Dhillon, senior portfolio manager for TD Wealth Private Investment Counsel, but make sure you work on a potential plan you can share with them.

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“If you have such a lifestyle, what kind of expenses do you have? What kind of income do you have?” she said. “We’ll make forecasts to see how you can achieve those goals.”

There are considerations to keep in mind on both sides of your finances, cost and income, say Dhillon and Bahadurali. For example, you may choose to move or downsize to cut costs now that the kids are out of the house, or explore a passion project to increase income. According to Statistics Canada, nearly 40 percent of Canadian seniors between the ages of 65 and 69 report working part-time after retirement.

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A first step is to find out what your monthly cash flow is and how much income you need to cover your expenses.

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But you may also want to help with your child’s education, a wedding or your future grandchildren, or just want to have money for your estate one day.

Also, keep in mind that your child may decide to move back in with you, whether it’s during or after post-secondary education, or because the lockdown has left them with no other option. In a Finder study, about two million Canadians chose to move back home during the COVID-19 pandemic. That adds years of stress to a family’s finances.

“The world closed and made people insecure about their jobs, and there were a month or two when people were very concerned,” Bahadurali said. “Access to liquidity is very convenient. That can be a savings in case something happens. Many people have set up tax-free savings accounts, which can be a source of an emergency fund. And another source is your registered retirement savings plan.

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We have certainly learned that no one can ever plan every outcome. But that shouldn’t stop Canadian parents from achieving their goals. It just means that a solid plan is needed. If that affects your kids, you should definitely include them in the conversation, Dhillon said.

The world closed and made people insecure about their jobs

Hamza Bahaduralic

“When it comes to preparing for retirement… it also teaches the kids independence and financial literacy. You want to make sure that when they leave they can stand on their own two feet,” she said. “It can be a blindside if you don’t think about it.”

That’s why it’s important to start a retirement plan as soon as possible, not two years before you hope to live a retired life. Give yourself time to make a plan that involves your kids for when they move out of the house and that financial pressure is lifted.

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“Sometimes these conversations are difficult,” Dhillon said. “But the most important thing is to keep those lines of communication open with your financial advisor and your family members, because ultimately… you just want to make sure you’re happy and that you’re comfortable.”

If you want to retire in the next decade, not everything has to be fixed now, but developing a plan will help you as a roadmap to your goal.

“Bringing in consultants, creating a wealth plan and roadmap for yourself, and then reviewing that plan every few years to make sure you’re on the right track can be very helpful,” said Bahadurali. “When you’re thinking about a retirement lifestyle, whether you’re younger or still working or thinking about it after the kids have left, the most important thing is that you have a plan.”

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