Sam and Christine live in Moncton, New Brunswick. Sam is celebrating his 71st birthday this year. He has held on to his Registered Retirement Savings Plan (RRSP), optimizing the tax sheltered benefits of doing so. He named his wife Christine as beneficiary of that plan. Sam wants to convert his RRSP to a Registered Retirement Income Fund (RRIF).
Tom and Sharon have been together for about 8 years. This is a second marriage for both of them. Tom is semi-retired; Sharon is a retired schoolteacher. The couple are both wary investors; they still feel the pain of the big market correction in 2008–09. They moved their investments to segregated funds for the insurance guarantees including the ability to reset the minimum guarantees based on the growth on their investments.
The next retirement myth is an example of an inter-generational issue. It also goes back to the issue of when to start making and funding plans for retirement.
Things often go wrong or take an unexpected turn even though you carefully planned what you were going to do. Robert Burns’ famous line basically said that the best laid plans of mice and men often go astray. That extends to intentions of staying on the job or finding paid work later in life. Here's retirement myth #9:
At the risk of sounding nitpicky, governments don’t pay for anything. Working Canadians do. Taxpayers do. Taxes are directed to certain areas of need. Growing needs and rising costs means that there isn’t enough public money to go around. That reality is hitting retirees and will hit them harder as time goes on.
The outbreak of COVID-19 is having a significant impact on all Canadians. According to a Mar. 25th news release by the Dept. of Finance, "The Government of Canada is taking strong, immediate and effective action to protect Canadians and the economy from the impacts of the global COVID-19 pandemic. No Canadian should have to choose between protecting their health, putting food on the table, paying for their medication or caring for a family member."
Some rules of thumb and long held assumptions may work well while you are saving for retirement. Holding on to them when you are spending those savings during retirement, may become toxic to your financial health. The myth is that you’ll have enough money to last through retirement as long as the average rate of return matches your plan.
Retirement Myth #7: Your money will last as long as the average rate of return is good.
I’m sure you can come up with a list of things that don’t fit the “set it and forget it” philosophy. Set the cruise control and forget it. Set the room temperature and forget it. Invest in a certain investment that has a particular risk associated with it and forget it. You need to make adjustments as the situation changes and as your needs and priorities change. Retirement income planning works like that.
The myth of never touching your capital starts when people are working and saving for retirement. Some become conscientious savers, never touching their nest egg. That mentality spills over into retirement. Changing habits can be hard.
How much income will you need during retirement? The myths and misunderstandings continue, despite growing evidence and research that debunk them. Retirement myth #4: You need 70-85% of your current income in retirement.
