A good place for immigrants to start planning for retirement is knowing what to do and what retirement mistakes to avoid. Retirement planning used to be a lot easier. You worked your whole life for the same company and retired at the golden age 65 with a gold watch and a nice pension.
It’s a different story today. And for new immigrants, who often start new careers in Canada, the retirement journey is often more complicated. As a result, they make many costly retirement mistakes.
Here are top 12 common retirement mistakes immigrants make, along with tips on how to avoid them:
Retirement Mistake #1: Expecting the government to look after you in your old age
If you’ve lived and worked most of your life in Canada, you’re probably counting on getting government benefits in your golden years.
There are three different pensions you may be eligible for: Old Age Security (OAS), Canada/Quebec Pension Plan (CPP/QPP) and the Guaranteed Income Supplement (GIS). The problem is that even if you qualify for all three, the maximum you will get is less than $24,000 per year.
If you don’t own your home and you live in a city like Toronto or Vancouver, that amount will barely cover your rent alone. How about food, healthcare and other expenses? Get smart, and start saving early for retirement.
Retirement Mistake #2: Counting on an inheritance
If your parents are comfortable financially, and have huge investments, that’s great. But as they say, don’t count your chickens before they’re hatched.
You never know. Your parents may need most or all of their money for themselves, especially if their health declines and they need assistance at home or in a care facility.
Remember, too, that family dynamics are more complicated today than in the past. Your parents may direct that their belongings be used to support children from a previous union, a former spouse or their favourite charity.
Get smart about your money and avoid this costly retirement mistake of banking on an inheritance to fund your retirement.
Retirement Mistake #3: Not having a will and estate plan
Many immigrants are superstitious about doing a will. You need to take steps to preserve and protect everything that you’ve worked hard to build for yourself and your family. For that, you need a will along with powers of attorney for property and healthcare.
You don’t have to be rich to need an estate plan. At the very least, you should have a will outlining who inherits your belongings and naming an executor (the person you choose to administer your estate).
You should get a will or update what you have as an important part of your retirement planning, so you can avoid this retirement mistake.
Mistake #4: Not accounting for healthcare costs
Once you leave the workforce, the cost of prescriptions, eyeglasses, physiotherapy and so on may no longer be covered by an employment-based group benefits plan. And while the government of Canada does cover the cost of some medications for seniors, there’s a lot more that isn’t covered.
Don’t be carried away by the free health care system. You need extra money to maintain overall good health in your old age. Factor this in your retirement planning, and avoid this retirement mistake.
Mistake #5: Forgetting about inflation
For many years, inflation in Canada has been near record lows. But it’s a different story today, and the record inflation has become the headline news.
A basket of groceries costing $120 today could cost cost more than $350 in 10 years, at the current inflation estimates.
The bottom line is that when you’re living on a fixed income, any increase in the cost of living can be very serious.
Of course, there’s not much you can do on your own to control inflation. But you can take steps to protect yourself. The top 2 retirement planning tips for immigrants is to save and invest consistently.
Mistake #7: Falling for get-rich-quick schemes
Over $379 million was lost to scams and fraud in 2021, an increase of 130% from the previous year. A good number of immigrants and seniors were victims of frauds and get-rich-quick scams.
Remember, if it’s too good to be true, it’s often not true. Careful planning and steady wealth building are the foundations of financial security in retirement. There are no short cuts.
Mistake #8: Carrying credit card debt
Paying down debt is also essential to retirement planning, though many immigrants don’t do it aggressively enough.
Ideally, you should work toward having no debt except your mortgage. Once other debts are paid off, and you are funding your retirement, then focus on paying down your mortgage.
The worst debt of all is probably credit card debt, and it could easily ruin your retirement plan. Immigrants should avoid this retirement mistake.
Mistake #9: Having no retirement plan
Not starting the retirement-planning process is one of the biggest retirement mistakes you can make. You should determine what you want your future to look like, as well as how much money you can realistically set aside. Then, find a plan that will get you there.
Many immigrants and young Canadians make this costly retirement mistake. A BNN Bloomberg survey found that nearly 70% of Canadians don’t have a retirement plan.
This is one of the costliest retirement mistakes immigrants make.
Mistake #10: Having unrealistic expectations for retirement
Consider the true costs of retirement and be honest about the following:
– What kind of lifestyle you want
– Your travel plans
– Your business goals
– Whether you’re planning on helping your children or grandchildren with expenses
Draft a retirement budget and plan that’s realistic and assess whether you need to make sacrifices now to achieve your future financial goals. That way, you will avoid making this retirement mistake.
Mistake #11: Paying more tax than you need to
The very foundation of retirement planning is setting aside money today to support yourself in the future. But sources of retirement income are subject to different taxation.
When it comes to retirement planning in Canada, the two most important savings options are the RRSP and the TFSA. Both plans allow your contributions to grow tax-free within the plan, but there’s a big difference between the two when it comes to getting your money out.
Strategically planning how and when to make withdrawals from your retirement funds can help minimize the tax bite and maximize your cash flow. That way, you also avoid the retirement mistake of paying more taxes than you should.
Mistake #12: Giving up hope because you started too late
If you started your retirement savings five, 10, 15 or even 20 years late, it’s still worth the effort to catch up.
You’re not the only one who’s behind on retirement savings. That gives you the motivation to start planning for retirement today.
Remember the Chinese proverb: “The best time to plant a tree was 20 years ago. The second best time is now.”
Hope is not a retirement strategy. But giving up hope is also a retirement mistake immigrants should avoid.