November 20, 2018
From attending parties to raising kids to running a business, life is busy. Amid the joys and stresses of daily life, staying on top of your finances can be a challenge, let alone finding time to plan for the long term. And even if you had the time, how are you supposed to know what’s important for your financial future and when you need to take action?
As November is Financial Literacy Month (#FLM2018) in Canada, we’ve created the Your Money, Your Life series aimed at addressing these questions and highlighting key financial considerations for different age groups. Every individual is unique, so these aren’t hard-and-fast rules. Instead, they are signposts meant to guide you toward financial decision-making that makes sense for your situation.
The following article addresses financial matters of importance to Canadians in their 50s.
Thriving professionally and preparing for retirement
For many Canadians, life in your 50s is a period of professional success and personal fulfilment. If you are a parent, you may be seeing your children finishing school and leaving home, which can lead to more time and freedom for you to explore personal interests. At the same time, you may be approaching the peak of your career, with your experience and expertise reflected in your professional recognition and remuneration.
So what are the key financial considerations that should be on your radar at this age? Here are a few of the major financial issues and milestones common among your peers in their 50s:
- Becoming an empty nester
- Having more time for hobbies and passions
- Preparing for early retirement
- Spending time abroad (vacation home/traveling)
A unique set of personal and professional developments have shaped your life up to now, so your financial needs may differ from those of your peers. Nonetheless, there are basic financial steps that generally make sense for people in their 50s.
Ensuring your family’s financial goals are met
From a financial perspective, your 50s are the time for ensuring that your family’s financial goals are being met and making adjustments where needed if this is currently not the case. While you may experience an increase in disposable income if your children move out or you finish paying off your mortgage, it’s important to ensure your future financial needs are taken care of before you rush off to spend your surplus income.
Here are five key steps that you can take in your 50s – in addition to the steps that you took in your 20s, 30s and 40s – to ensure you stay on course for a bright financial future:
1. Develop a plan for the future of your business. According to a Business Development Bank of Canada report, 60% of Canada’s SME owners are 50 years or older. After spending years building up a successful business, the last thing you want to see is it falling apart or fading away once you’re out of the picture. This is why succession planning is critical. Finding the right person or people to take over your business takes time, but this is time well spent if it leads to a smooth transition – especially if the alternatives are a rushed sale of your business or simply shutting down.
2. Free the trapped surplus in your professional corporation. If you’re a lawyer, doctor or other professional, there’s a good chance you’ve built up a significant financial surplus in your corporation over the course of your career. As you now inch closer to retirement, you may be wondering how to maximize the amount of this surplus that will end up going to your family rather than taxes. One tax-efficient strategy to consider is corporate-owned life insurance. By purchasing life insurance with dollars taxed at the corporate tax rate rather than your personal tax rate, you can potentially save many thousands of dollars in taxes when the proceeds of this policy are eventually paid out to your family.
3. Top up your RRSP. Many people are near the peak of their earning potential in their 50s, making this a great age at which to maximize RRSP contributions. This is especially true if your household expenses have declined – for example, if you’ve paid off your mortgage. Yet Statistics Canada data suggests that only 36.5% of Canadian households with a major income earner in the 55–70 age bracket contribute to an RRSP. By directing surplus income to your RRSP, you can reduce your tax bill now when it’s at its highest and defer the tax until you start making RRSP withdrawals in later years, at which point you may be in a lower tax bracket.
4. Get your estate in order. Caring for your family is of utmost importance, and estate planning is a critical component of this. Yet nearly one in six Canadians has a will that is not up to date, according to an Angus Reid Institute poll. Taking the time now to put in place clear plans can save your loved ones significant stress following your death – a time when they should instead be focused on grieving. They may not be easy discussions or decisions, but they are important ones. In addition to having an up-to-date will, another key aspect of a solid estate plan is ensuring that your loved ones are looked after financially after you’re gone. Even in your 50s, it’s not too late to take advantage of the significant benefits of permanent life insurance, which include tax-free investment growth with the policy and a low- or no-tax payout to your beneficiaries upon your death.
5. Plan your legacy. The wealth that you build during your lifetime will likely outlast you, so what do you want it to do after you’re gone? To develop a clear purpose, it’s important to ask big questions so that you can see the big picture. While you will likely leave some of your wealth to love ones, you also have the ability to make a significant impact in areas meaningful to you by directing some of it toward philanthropic causes. The key is to approach this issue thoughtfully with input from family members and advisors so that you can make meaningful decisions.
Staying on track with a clear plan
If you find yourself riding high on personal and professional achievements in your 50s, remember to keep pushing ahead with your wealth management plan so that these good times can continue into your 60s and well beyond. On the other hand, if you feel financially unprepared in your 50s, the good news is that it is never too late to take action and improve your situation.
Seeking out support from a trusted financial advisor can help you better understand your options and ensure your wealth management plan is tailored to your needs. For a discussion about how we can help you reach your financial goals, contact Rubach Wealth at (647) 349-7070.