Taking Financial Responsibility for Your Retirement 

Do you know exactly how you are going to finance a 20 to 30-year retirement?

If not, you're not alone. According to various reports, Canadian baby boomers are not financially prepared for their impending retirement. With the first of the boomers already in their 60's, Statistics Canada reports that by 2016 there will be more people over the age of 65 than under 14 in Canada.

Increased longevity, coupled with a decline in employer defined benefit pension plans has changed the focus for those facing retirement. The reality is that future retirees will have to shoulder more personal responsibility for managing and understanding their finances in retirement than previous generations.

With such a large part of the Canadian population approaching retirement, more people are shifting their focus from simply saving for retirement to determining how to turn their savings and investments into an income stream that will support them throughout their retirement.

"Many of us need to take more responsibility for retirement by creating a financial plan that goes well beyond simply having an RSP," says Judy Thomson, Director of BMO Retail Investments. "You really want to start thinking about retirement income five to ten years before you retire.

Working with an investment professional will go a long way to ensuring your finances will be there for you when you need them in retirement."

The last two federal budgets gave Canadians three ways to take more responsibility for their financial future, including tax breaks and other measures to encourage saving more for retirement.

The most recent was the introduction of the Tax Free Savings Account (TFSA) in 2008. Starting in 2009, Canadians 18 and older will be able to put up to $5,000 a year in a TFSA in virtually any sort of investment. All investment income generated will be tax-free, including when the funds are withdrawn.

TFSAs appeal to seniors as they can use these accounts to access tax-free income that doesn't affect their eligibility to receive the Old Age Security benefit.

Other important changes introduced in the last two federal budgets include income splitting opportunities for seniors (for income tax purposes) and the rise in the RRSP age limit to 71 from 69.

There are also a number of financial products on the market that can help Canadians better plan and manage their retirement income. Options for retirement income that you may want to consider include:

• Dividends: a per-share payment received by investing in a company's stock either directly or through mutual funds. Dividends are taxed more favourably than interest income.

• Annuities: An annuity is a contract with a life insurance company that provides a series of regular payments. Life annuities can fund a secure retirement with lump sums of assets 25 to 40 per cent less than what would be needed using other types of investment products.

• Life-cycle mutual funds: These mutual funds mature on a specific date in the future that typically coincides with an important event such as retirement. Based on your time-horizon, the overall asset allocation of the fund automatically adjusts over time, from more aggressive at the beginning to more conservative, protecting gains as it gets closer to maturity.