9 financial mistakes to avoid in retirement

1. Living without a budget

Managing your finances without a budget is like walking blindfolded. If you want to know whether your retirement income will be enough, you need to track what’s coming in and going out.

Making a budget is fairly simple, but you’ll want to watch out for pitfalls such as:

• Forgetting about future healthcare costs that could rise
• Believing that cost of living after age 80 is much lower
• Overlooking life expectancy
• Underestimating inflation

You need to know how many years you can realistically maintain your current lifestyle.

2. Withdrawing from an RRSP or other investments without a withdrawal plan

Taking money from your investments in retirement might seem straightforward, but there’s an art to it. To make sure your money lasts for life, you have to consider tax rates, your age, your expenses, and more.

Improvisation doesn’t belong in your withdrawal plan. Take advantage of the expertise of your advisor to develop your plan.

A strong withdrawal plan works now and in the future. It blends multiple investment types (RRSP, RRIF, TFSA and non-registered accounts) to maximize your net income year after year.

The goal is to plan withdrawals to reduce taxes over your whole retirement, not just one year. If you withdraw too much from taxable accounts (like your RRSP) at once, your tax rate will go up. You could also lose access to certain tax credits or benefits. That’s a double hit... You pay more taxes, but get less financial help.

3. Applying for government pensions without proper analysis

You qualify for the Quebec Pension Plan (QPP) (This hyperlink will open in a new tab) and Old Age Security (OAS) (This hyperlink will open in a new tab)? Great! But sometimes, it’s worth delaying your application.

It can be tempting to take more income between 60 and 65, but there’s a good chance you’ll regret it later. If you draw from your TFSA or RRSP first, you could lock in a higher pension for life.

Before you apply, assess your financial situation with all your assets in mind, as well as your:

• Life expectancy
• Other sources of income
• Health status

4. Going 100% conservative at the start of retirement

A good portfolio is diversified, with a long-term view.

Many retirees focus too much on safety early on, but you will probably need to lean on your investments until you’re 80 or 85.

A risk tolerance questionnaire can help you make the right choices. Your advisor will help you take your liquidity needs and other income sources into account.

Aim for a balanced portfolio that includes:

• A more secure portion for your early retirement years
• A diversified portion with stocks, bonds and fixed income to generate returns for withdrawals in 7 to 10 years

5. Overlooking tax planning

Let’s face it, there’s nothing sexy about taxation! But when planned wisely, it can definitely work in your favour. Paying less tax means more money in your pocket to enjoy the retirement of your dreams. The trick is knowing the right strategies.

Consulting an accountant or tax specialist, even during your first retirement year, is a good idea.

It will allow you to:

• Choose the right investment vehicles
• Split your retirement income if you’re married or partnered
• Plan withdrawals efficiently
• Make use of tax credits

With good tax planning, you’ll get answers to questions like:

• Should I take money from my RRSP before my TFSA, or the other way around?
• How can I cut taxes if I’m married or still working?
• Can I keep contributing to my RRSP in retirement?

Basically, a solid tax plan can turn your savings into real peace of mind.

6. Skipping insurance

Over time, your needs change, including insurance. And there are many types of insurance to navigate.

Work with financial advisors who can help you understand your coverage and assess your needs, both current and future.

If you’re still working, your group plan may include life, health and disability insurance.  But this coverage may end when you retire.

Illnesses can strike unexpectedly

A serious condition like cancer could force you to dip into your savings sooner than expected. Without insurance, your investments can disappear quickly.

With life expectancy rising, so does the risk of illness. Tailor-made insurance that's tailored to your needs becomes even more important for peace of mind.

7. Overlooking estate planning

Dying without a will leaves your loved ones with legal and financial headaches. Spare them the trouble by planning a will.

Without one, the law decides your heirs. Quebec’s family law reform now protects surviving partners with children from common-law relationships, but it’s still important to specify who inherits what. Estate planning starts with reviewing your finances and wishes. It can also help grow your wealth and pass it on efficiently.

To get help making the right decisions, talk to a notary (This hyperlink will open in a new tab).

And what about RRSPs?

Without planning, they’re taxed at death. If your spouse is named beneficiary, the transfer can be tax-deferred until the funds are withdrawn. They will have to pay taxes, but only on the withdrawn amount.

8. Underestimating debt repayment

Debt in retirement isn’t ideal, but it happens.

Luckily, there are ways to take back control of your finances.

Start with the most expensive debts, especially high-interest ones like credit cards. Include a fixed repayment amount in your budget.

Try consolidating your debt to the lowest possible interest rate.

9. Trusting the wrong people

Retirement should be planned, not left to chance.

It can be tempting to follow financial tips from friends or family who seem to be doing well, but do they really know all the financial strategies and how they would impact you? What works for them may not necessarily work for you. Are they giving you the full scoop?

Get advice from licensed professionals with proper credentials (e.g. from the Autorité des marchés financiers (This hyperlink will open in a new tab) who can analyze your situation thoroughly and help you create a personalized plan.

Together, you can create a tailor-made plan and make the right decisions. That way, you’re more likely to get where you want to go.

Adjust when needed

Even in retirement, you can still make changes. Your situation, needs and priorities can change. The good news is that your financial plan can be adapted with your advisor’s help.