If retirement is still a few years away for you, why think about it now? With the increase in the cost of living and the crazy real estate markets, many people have stopped planning for retirement in favour of the here and now. But planning for retirement doesn’t just have to be about taking away from today’s finances – it is much more than that. Even those who have just entered the workforce are encouraged to start saving for retirement – but the question is how and how much? Find out below.

How do I plan for retirement?

The number one rule when planning for retirement is: the earlier you start, the better! One of the best ways to start saving is to put a small amount of your paycheck away each month, and doing this early can bring you a significant amount of money by the time you retire. Here are some other ways that you can start planning for retirement:

• Use pre-authorized transfers: One of the best ways to help you to start saving early is to use pre-authorized programs that automatically stash a small amount of money each month. You can set the amount to whatever you want, and that amount will be put away into a seperate investment or account automatically. The earlier you do this, the more time you will have to put away money and gather compounding interest. Although it may seem like a small amount at the beginning, this money can grow significantly over time.

• Set retirement goals: Everyone has different plans for retirement, and these plans will significantly impact the amount of money that you need to save. Think about the type of lifestyle that you want to lead during retirement in order to price out your savings. Consider things such as travel plans, existing or new hobbies, what age you would ideally like to retire by, whether or not you will have a part time or contract job during retirement, your plans for children and grandchildren, and whether you will have debt to pay (such as a mortgage).

• Compare your current spending with the amount you expect to spend: It is always a great idea to keep track of your spending, but even more so when planning for retirement. Tally up what you are currently spending on needs and wants, and think about how these expenses will differ when you are retired. Often retirees see their expenses go down as they pay off their mortgage and reduce their commuting time and distance. There are many online tools that can help you calculate your budget, so be sure to paint a thorough picture of what you spend.

• Schedule a meeting with a financial planner: Financial planners are experts in their field, and this means that they can help you determine the best type of retirement plan for your goals and lifestyle. Aside from choosing a plan, they can also help you restructure your accounts, plan how much money should be going into each account, and help you understand the big picture of your retirement plan.

• Plan for the unexpected: Unexpected costs happen, so why not be prepared for them when they do? Sometimes these situations can happen right before retirement, so rather than spend your hard earned savings on extra costs, think ahead and set aside an emergency fund. Most advisors say that three months of living expenses is a good amount to save as a general rule.

There are a few different types of retirement plans that Canadians use. Some of the most common types include:

• RRSPs: Registered Retirement Savings Plans are a great way to grow your savings with significant tax benefits too! The Canadian Government offers tax-free growth on these contributions up to a maximum amount.  

• TFSAs: Tax-Free Savings Accounts helps Canadians aged 18 or over save money in a special account that is not taxed at the time of withdrawal.

• Corporate Pension Plans: Many companies offer their workers a pension plan, which you should take advantage of as soon as you start work!

• Investment Accounts: These accounts are a great addition to a RRSP or TFSA and can cover a broad range of products such as bonds, ETFs, stocks, GICs, and mutual funds.

• Reverse Mortgages: Some Canadians opt to take out a reverse mortgage if they have little to no retirement savings. This product is available to homeowners aged 55 or over that do not have an existing mortgage, and it allows them to access up to 55% of their home’s value in tax-free cash (and no monthly payments).

How much should I save for retirement?

The amount of money needed for retirement will be different for everyone, and is largely dependent on lifestyle choices and future plans. While some people suggest saving up to 15% of your current income for retirement, remember to look at your unique situation to determine the best amount for you. Be sure to also take into account government benefits such as the Canada Pension Plan, Old Age Security, and Guaranteed Income Supplement. Talking to a financial planner or using an online tool are great ways to help you come up with a solid number.

That’s it! Retirement planning is that easy. If you are approaching retirement and are struggling with your retirement savings, a reverse mortgage product could be right for you. Contact me today for more information on reverse mortgages in Brampton!