You Need a Plan
Whatever your age or situation, you should have a plan for retirement!
Planning is the only way to avoid unpleasant surprises, like not being able to retire when you expected or not having enough income during retirement.
The key to retirement planning is starting when you still have enough time to accumulate adequate savings, before the amounts you must save become too high.
Planning for retirement means answering one basic question: how much should I put aside each year to reach my retirement objectives? Planning for your retirement can be broken down into four main steps.
Step 1 – Setting Your Objectives
First you need to set your objectives:
The age at which you want to retire
Be aware that if you want to retire early, you will need to save more money because you will be living off your retirement income for a longer period of time.
The amount of money you will need when you retire
This will depend on what type of life you want to live after you retire. Experts often express the amount of money you will need as a percentage of pre-retirement income. In determining this percentage, you need to take into consideration that some types of expenses will likely decrease or disappear during retirement (such as transportation costs, clothing, saving for retirement, mortgage, and expenses for dependent children) while others will likely increase (such as travel and health care).
Step 2 – Evaluating Your Retirement Income Sources
Then you need to make an inventory of all your potential income sources during retirement. Your income sources will typically include government plans (Quebec or Canada Pension Plan, Old Age Security), employer plans (past and present) and your personal savings (RRSP, TFSA and others).
What you want to do is estimate your total retirement income from all sources, taking into account the savings you have already accumulated as well as future contributions and future investment income.
Using a calculation tool or consulting a personal financial advisor can be most helpful at this stage. As a first step, it’s a good idea to read over documents such as the annual pension statement you receive from your employer, your personal RRSP account statement from your financial institution and any statement available on your participation in government plans.
Step 3 – Establishing Your Saving Strategy
When you know where you stand, you will be able to determine if you are on the right track. If you are not on track and the figures show that you will likely not reach your objectives with what you already have, you can then decide to increase your savings and/or change your investment strategy… or modify your plan.
Step 4 – Monitoring Your Progress
For successful long-term planning, you also need to review your plan regularly to see if it needs to be modified. Your financial situation and economic conditions will change over time and you will likely need to make adjustments as you go along.
In Conclusion
Obviously, there is much more to retirement planning than this. For example, you will need to answer other questions such as:
- How should I invest my savings and what is my risk tolerance?
- How can I take full advantage of the income tax system?
- What other assets or income should I consider in my retirement planning?
- How should I use the money during retirement?
Hopefully this will point you in the right direction and persuade you of the importance of planning for retirement.
We strongly suggest that you meet with a personal financial advisor to help you draw up your plan.
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