The high cost of living is driving a rethink of how and when we retire.
People are retiring later, as documented in the rise in the average age of retirement to 65.1 years from 64.2 years in 2019. Another adjustment is people dipping into their retirement savings to help adult children manage the cost of living and home ownership.
Years ago, retirement was depicted by the financial industry as a time to spoil yourself with travel and experiences. Beaches, ski chalets and silver-haired people riding scooters featured prominently. A reader of this newsletter recently referred to this live-it-up mindset in a note in which she mentioned a recent 1.5-month trip to Europe. She referred to the vacation this way: “SKI trip: spend kids’ inheritance (seniors’ joke).”
What’s interesting about this individual is that she’s finding a balance between a SKI trip and helping her adult child. She mentioned providing $300 in groceries monthly, yearly vacation subsidies and a registered education savings plan for her grandchild. Also, from time to time, she just e-transfers money.
A survey of grandparents I wrote about recently documented the generosity of some retirees – roughly 75 per cent said they contribute toward the cost of holidays, clothes, child care, groceries, home down payments and much more for their grandkids. Most survey participants said they help because they have the means to do so, but quite a few said their families need the help. The grandparents who did not provide help mostly said they felt their families didn’t need the assistance.
The balance of enjoying yourself as a retiree and helping your family in the present day can get complicated if you additionally want to leave an inheritance after you die. If you can’t tick all three boxes, there’s a lot to be said for providing help now at the expense of a legacy after death. Three thoughts on offering an inheritance early:
– You get to see family members benefit from and enjoy your generosity.
– You can offer guidance and support in using the money.
– You can discuss this help with family members to ensure fairness and forestall resentments
The golden rule for retirees helping family members: Don’t sacrifice your own financial security. If you’ve been thinking about hiring a financial planner to talk about retirement, the affordability of financial gifts for family is a great topic to include in your discussion.
Subscribe to Carrick on Money
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
Rob’s personal finance reading list
A hierarchy of investing mistakes
Four levels of mistakes are outlined, with one that you really want to avoid. That would be “endgame mistakes.”
Climbing down from an all-stocks portfolio
Thoughts on ideal mixes of stocks and bonds based on your age and stage of life. The discussion starts with an interesting question: When is the right time for investors using an all-stocks approach to start adding bonds.
No, you’re not throwing your money away on rent
Three specific situations where renting makes financial sense. Globe and Mail personal finance editor Roma Luciw and I will dig into this topic in the 10th season of the Stress Test personal finance podcast for Gen Z and millennials, which launches in January.
A plug for smart use of extension cords
Avoid damage or fire risk by plugging these seven appliances directly into a wall plug, rather than an extension cord.
Podcast fans
Subscribe to Stress Test on Apple podcasts or Spotify.
Ask Rob
Q: What is your view on perpetual preferred shares in today’s financial environment? As a retiree, I am looking for stable, sustainable income. Does this asset class fit the bill?
A: The short answer here is: Yes, but. Perpetual preferred shares have no set redemption date – they basically pay quarterly dividends at a set rate indefinitely. This makes them as vulnerable as bonds or more to interest rate ups and downs. If you can live with this and focus entirely on dividend income, then perpetuals could work as part of a diversified portfolio. One other issue is that perpetuals are often illiquid, which means buying them may require that you pay more than the latest market price. Same with selling – you may not get what you expect.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools and guides
A look at the rising dominance of the so-called Magnificent Seven technology stocks in the S&P 500. We’re up to more than one-third this year.
In the social sphere
Social Media: Read this exchange if you’re obsessed about your high credit score.
Blog: Why is air travel so expensive for Canadians? A question asked by everyone who has priced airlines tickets recently.
Money-Free Zone: The singer-songwriter Cat Power has produced a lot of great original material, but she also has a love of cover versions. Here’s one of her best, a slow-burn version of New York.
ICYMI: More PF from The Globe
– Couple awarded $10,000 for botched Air Canada trip shows court is best bet for angry consumers, advocate says
– Lenders are about to face a cap on interest rate charges. Now consumer advocates worry they’ll push optional insurance products
– A house is a wealth trap for those looking to retire
– Faced with a weaker loonie, snowbirds are weathering the economic headwinds. Here’s how
– What financial experts wish you knew about divorce
