People in their 60s or about to turn 60 cite finances as the main reason why they’re not sure to retire yet. Those who are still working in their mid-60s are belatedly saving money to bolster retirement fund.
Even if the Canada Pension Plan (CPP) and Old Age Security (OAS) are coming at 65, seniors know the pensions won’t guarantee financial security. Thus, many can’t afford to retire even if they wanted to. However, it’s not impossible to make a go of it. You can still improve your retirement readiness by doing a three-step checklist.
1. Scale down expenses
Some people don’t realize they’re not good to retire because of spending habits. Revisit your monthly budget to see where you can cut down expenses. Once you identify the non-essentials, create a new budget. Stick to it like glue and don’t go beyond it. Downsize your lifestyle if need be because it’s an effective way to prepare for retirement
2. Prioritize debt repayments
With scaled-down expenses, you can free up more cash that can go directly to retirement savings. However, if you have outstanding debts, create a repayment plan and eliminate them as soon as possible. Prioritize high-interest debts or credit card bills to lower interest costs. Avoid obtaining new ones or you push back your retirement date further.
3. Develop an action plan
The third step requires financial discipline and flawless execution. You need to develop an action plan. Action means maximizing your savings by making catch-up contributions to your Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).
A TFSA has no age limit, and you can maintain it for eternity. You can keep contributing to your RRSP until age 71. You’ll only pay taxes when you withdraw the fund. The two accounts are your investment vehicles to fast track money growth. The goal is to create investment income to supplement your CPP and OAS.
You can delay taking the pensions until 70 to receive higher payments. Another option is to start CPP at 65 and claim OAS at 70 or vice-versa. Either way, the monthly payments will increase.
Lifetime retirement asset
Using your savings to invest in a Big Five bank like the Canadian Imperial Bank of Commerce (TSX:CM(NYSE:CM) can relieve you of pre-retirement anxiety. The fifth-largest bank in Canada has been paying dividends since 1868. With its impressive dividend track record, the bank can continue paying for another150 years.
The bank stock made a remarkable comeback following the COVID-induced market crash. CIBC shares sank to a low of $64.42 on March 23, 2020, but are now trading at $111.88 per share. The 73.7% rally is solid-proof of its resiliency amid an economic. Only the best companies can rebound from a severe beating.
A buy-and-hold stock like CIBC is a must-own retirement asset. Regardless of the market environment, you’ll keep receiving a recurring income stream. Make it a core holding in your TFSA or RRSP to maximize your savings. You can use both to save on taxes in your retirement years.
Having less than ideal retirement savings in your 60s doesn’t mean you’ll work forever. Follow the three-step checklist and work it up to develop your financial muscle in retirement.
Speaking of a three-step checklist to improve readiness of people in their 60s who can't retire yet...
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Fool contributor Christopher Liew has no position in any of the stocks mentioned.