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Plan ahead to lessen financial reliance on children later in retirement
Retirement-ready investments can help maximize savings, stretch funds further down the road
TORONTO, Oct. 22, 2014 /CNW/ - For many Canadians, an important part of retirement planning is saving money now and getting their investments retirement-ready so their children won't have to support them financially after they stop working. Two-thirds of Canadians aged 40 to 64 provide or expect to provide care for an aging parent or in-law, and one in five also provides or expects to provide some financial help. According to a recent TD survey, today's near retirees are anxious to avoid putting their own children in the position many of them find themselves in.
"If people maximize their retirement savings during their peak earning years – and then get those finances in shape for when they retire – they'll be less likely to rely on their children for financial help," said Dave Kelly, Senior Vice President, Private Investment Advice, TD Wealth. "While most Canadians recognize the benefits of starting to save early, thinking about how you'll draw from retirement funds when you stop working is just as important. Doing both will give you more time to save and invest as efficiently as possible."
Kelly says it's important to talk to a financial advisor about how to make your investments retirement-ready and get the most out of them, including finding ways to keep taxes to a minimum. One thing to consider is when it makes sense to withdraw money from non-tax-sheltered investments rather than tax-deferred ones, such as a Retirement Savings Plan (RSP) or Retirement Income Fund (RIF). He also notes that, while money in an RSP can be converted into a RIF at any time, once it's converted there is a minimum annual withdrawal based on either the age of the fund holder or spouse.
"If your spouse is younger than you, your minimum withdrawal would be lower than if it were based on your age, but you have to elect whose age to use before your first RIF withdrawal, and once you choose, you can't change your decision," said Kelly. "A financial advisor can help you choose the right option, which could mean significant tax savings every year."
Gary Direnfeld, a family relationship expert and social worker, says it's understandable that people approaching retirement age don't want to have to ask their children for financial support after they retire. Direnfeld says some people may have already provided financial support to their own parents and appreciate the burden this can place on their children having been in that position. Parents typically want to spare their children the burden of care yet may still have to rely upon them.
"Many people are reluctant to ask for help, even if they need it," said Direnfeld. "But if you do find yourself in a position where you need to rely on your children financially, it's important to have a frank conversation with them about how much support is needed and understand how much they can provide so they aren't putting themselves under a financial or emotional strain."
In addition to financial support, Direnfeld notes there are also many indirect costs children may face, including the loss of earnings when caring for a parent or in-law, the cost of retrofitting a house or apartment so parents can continue to live there as long as possible, or hiring people to help with daily chores. Open and honest conversation upfront, Direnfeld says, is essential to avoiding financial-related family tension later on.
"Most children don't want to see their parents struggle to meet their daily expenses, and on the flip side, most parents don't want to put their children in a position where they are over-extending themselves financially to offer support," Kelly said. "Retirement holds a number of unknowns, but by maximizing savings during peak earning years and making sure those funds are invested tax-efficiently prior to leaving the workforce, parents can lessen the likelihood of needing to rely on their children down the road."
About the TD Canada Parenting Your Parents Poll
TD Bank Group commissioned Environics Research Group to conduct a custom survey of 2,711 Canadians aged 40-64 within a broader sample of 6,015 Canadians aged 18 years and older. Responses were collected between February 11 and 25, 2014.
About TD Wealth
TD Wealth represents the products and services of TD Waterhouse Canada Inc., TD Waterhouse Private Investment Counsel Inc., TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company).
About TD Bank Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as TD Bank Group ("TD" or the "Bank"). TD is the sixth largest bank in North America by branches and serves over 22 million customers in three key businesses operating in a number of locations in financial centres around the globe: Canadian Retail, including TD Canada Trust, TD Auto Finance Canada, TD Wealth (Canada), TD Direct Investing, and TD Insurance; U.S. Retail, including TD Bank, America's Most Convenient Bank, TD Auto Finance U.S., TD Wealth (U.S.) and an investment in TD Ameritrade; and Wholesale Banking, including TD Securities. TD also ranks among the world's leading online financial services firms, with approximately 8.8 million active online and mobile customers. TD had CDN$922 billion in assets on July 31, 2014. The Toronto-Dominion Bank trades under the symbol "TD" on the Toronto and New York Stock Exchanges.
SOURCE TD Canada Trust
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