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Ready to Retire? Not if You Can’t Answer These 3 Questions

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Editor’s Note: A previous version of this article stated that Canada’s debt was at a total of $272 trillion. This has been updated to reflect that there is $272 trillion in global debt.

Many Canadians on the verge of retirement likely felt they were 100% ready to retire. Their affairs were in order, they had a little debt but nothing unreasonable, and their savings, Canada Pension Plan (CPP), and Old Age Security (OAS) were ripe for the picking. Not to mention their Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA).

But then, the pandemic hit. Suddenly, all that cash started to get wiped out. Their finances got completely out of whack with working from home, potentially losing a position, or not getting that bonus they’d counted on to help with the bills. And if you’re a business owner, forget it. Losses on top of losses came your way.

So now, where does this leave your retirement plan? Let’s look at some questions.

How will you manage expenses?

This is a big problem now with the pandemic. Your expenses will only increase when you retire, so how will you cope when you don’t have a job bringing in a paycheque? It is critical to have a budget and know exactly how much money you can afford to spend in retirement year after year. With the average age of Canadians only getting higher, it could be several decades that you need to pay for.

Don’t just factor in your expenses now like food and clothing and bills. You also need to consider how you will pay for things when you’re older, like medical expenses. Do you want to enter a long-term-care facility? Who will pay for that? Even just downsizing costs money. Take all this into consideration.

What about inflation?

Again, make sure when you make these calculations you take into consideration rising costs. This is especially true after the pandemic. Global debt has reached an incredible $272 trillion — $15 trillion from this year alone with the virus. It’s very likely in the years to come we will see an increase in taxes, an inflation in basic costs, and, if you live above the poverty line, it’s likely you will see a huge rise in inflation.

What’s your source of income?

I already mentioned CPP and OAS, but that will only bring a maximum of about $21,000 per year as of writing. So, where is your regular source of income coming from? Of course, there are those TFSA and RRSPs to consider. What are your investments like?

If you’d invested in companies decades ago and held on long term, you could glance at this issue as a non-issue. Companies like Enbridge (TSX:ENB)(NYSE:ENB) and Royal Bank of Canada (TSX:RY)(NYSE:RY) have made investors huge gains in the last few years, even decades. In fact, if you’d invested $10,000 in both of these companies 20 years ago, you could have $89,134 in Enbridge and $93,960 in your portfolio from just returns!

But both of these companies are great investments today — especially if you’re about to retire. Both are strong, stable companies that have decades of growth ahead. Enbridge has pipelines set to bring an end to the oil and gas crisis, and Royal Bank has been expanding for years, bringing in serious cash from its wealth and commercial management sector. You could see the same investment soar in the next two decades and beyond.

Meanwhile, a $10,000 investment in both of these today would bring in a total of $1,192 in dividends each and every year. That’s a solid amount to add to your retirement portfolio. So, make sure you can answer these questions and that you have solid stocks like Enbridge and Royal Bank to bring in income for years to come.

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Fool contributor Amy Legate-Wolfe owns shares of ENBRIDGE INC and ROYAL BANK OF CANADA. The Motley Fool owns shares of and recommends Enbridge.

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