Written by Karen Hall, Vice President, Financial Education & Employer Services, B.Sc., R.F.P, CFP
August 29, 2013
At a recent company sponsored retirement planning seminar, an employee who we’ll call Ian wanted me to talk to his wife; to tell her she needed to go back to work. As if I dared!
I compromised and sent him this email to pass onto her.
Dear Ian’s long suffering wife,
Ian attended my retirement planning seminar last week. He really wants to retire someday and is hoping you can assist him by working for a few years. He wanted me to ‘tell you’ why you should go back to work. As if I dared!
As both a financial planner and person with a Scots’ heritage I am a pro-saving type of person. More income = more potential to save. So there’s merit to you going back to work but…it may be useful for you to decide what’s in it for you.
Let’s look at the tradeoffs:
Is Ian able to retire when he wants to? Before you even talk about this ‘returning to work idea’ complete a retirement projection. It should give both of you an idea if the total of your current investments plus any additional savings you plan to make each year (until Ian’s hoped for retirement age) can provide the annual income you want during your retirement.
If the projection shows you are not on track you can work with a financial planner to determine how much more you’d need to save each year. Then, discuss how you working and saving your income could help meet your savings goal. (I’m not brave enough to even discuss Option 2; that you like things the way they are, with Ian working and you not working…)
If the projection shows you’re on track then you can shift your thinking to other matters.
- Do you want Ian to retire earlier? Does that mean you need to save more in a shorter period of time?
- Do you want to help out by working and saving your salary?
- Do you want to build up a travel fund that you can use for vacations or perhaps to buy an RV? Your salary could go toward that.
- Do you want to make renovations, buy a new car or do something else that you can’t afford on Ian’s salary?
Those are all good reasons to earn some extra money.
If you do decide to go back to work take advantage of tax planning techniques that will lower your household tax bill. If your income allows Ian to save more in his RRSP, he’d get a higher tax refund than you could. He could invest in TFSAs for one or both of you. TFSAs tax shelter investment income and allow you to withdraw funds later tax free. He could pay the bills or pay for all the ‘extras’ I mentioned above while you invest your salary into non-registered investments in your name. That way you would pay tax at your lower tax rate on any investment income (interest, dividends or capital gains) that you earn. If that money was invested in Ian’s name he would pay tax at his higher tax rate.
What’s in it for you? There are lots of upsides to earning a bit of extra money. Of course if you are working, I think it would be reasonable for you to get some help with cleaning the house, doing the gardening, making meals, running errands….. all those things you do with your ‘work day’ right now. Time versus money, that’s the ultimate trade off.
Contemplating retirement? Get inspired to create a clear picture of your future by reading ‘Retirement Postcards: No Surprises and No Regrets‘.
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