Properly planning for retirement is important!

With the pandemic and rampant inflation, many of us are seeing our savings melt away and wonder what’s going to happen when we retire. So, now is the time to review your retirement plans or, if you haven’t already done so, to plan it properly. You will save yourself a lot of stress!

In short

  • One of the most common errors is to not plan your retirement or to think about it too late. To avoid making this time a source of financial stress, it’s best to start saving as soon as possible. There are two ways to save: RRSPs and TFSAs. Both methods allow you to accumulate tax-free savings.
  • To properly plan your retirement and choose the investment vehicles best suited to you, it’s preferable to consult with a financial planner. Go to the AMF’s registry to check the financial planner’s certification.
  • This professional can help you set your personal and financial objectives and propose savings and payouts to meet these.
  • Even if you have accumulated debt, there are solutions to reduce or eliminate it before retiring.

As life is full of surprises, you should revise your retirement plan regularly.

Financial well-being and preparing for retirement are strongly related. Furthermore, as life expectancy increases, your retirement will last longer and your savings will also have to last longer. According to a recent survey conducted by RBC entitled RBC 2021 Retirement Myths & Realities Poll, more than one out of four Quebeckers (27%) are afraid of outlasting their savings.1

The earlier you start planning for retirement, the greater the chances that it will be financially stable. After all, retiring does not only mean to stop working, but it’s also about starting a new adventure and fully enjoying it!

Two interesting savings vehicles: RRSPs and TFSAs

There are two ways to save money for retirement: the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA). Both will allow you to accumulate tax-free savings throughout the year.

The RRSP is mainly designed to save for retirement. The great advantage is that your contributions are tax-free, which enables you to recover some money in the short term. Your maximum contribution limit is 18% of your income earned the previous year and you can contribute up to the age of 71. The Canada Revenue Agency sets the annual contribution limit ($27,830 for 2021). Also, you can find your maximum contribution amount on last year’s tax assessment.

The TFSA allows you to carry out your projects or build up an emergency fund for unforeseen circumstances. Your maximum contribution room for 2022 is $6,000 plus any unused contribution room since 2009 and withdrawals from the previous year. The advantage of the TFSA is that the return on your investments will not be taxed. It is therefore perfect for medium-term projects. And the longer you let your savings work, the more it can pay off!

To properly plan for your retirement, consult a pro!

There are many things to consider when planning for retirement. It is best to work with a financial planner, someone who can help you determine your financial and personal goals and suggest savings and disbursement strategies to achieve them. Don’t forget to visit the AMF registry to check the professional’s certification.

Here are a few questions you should ask yourself in order to define your retirement plan.

Identify your retirement income sources

Like any Canadian citizen, you will receive a government pension at retirement, based on the contributions you made during your working years, such as the Canada Pension Plan or the Quebec Pension Plan. But these may not be enough to maintain your lifestyle. You must therefore plan for other sources of income, such as:

  • personal savings;
  • your employer’s retirement plan;
  • registered or non-registered investment income (RRSP, TFSA) like those mentioned earlier;
  • rental income or income from the sale of property.

Determine your retirement age

At what age do you want to retire? Do you want to stop working all at once or gradually? Answering these questions will give you an idea of how much time you have to save. Keep in mind that you could spend more than 20 years in retirement given the average life expectancy in Canada.

Identify your projects

Some dream of traveling the world in a camper, others of having a house in the country. What are your dreams? The best way to make your dreams come true is to plan your retirement.

Calculate how much to save per year

In general, it is recommended that you save 10% of your average annual income (before taxes). But it’s when you start saving, along with your standard of living and what you want to achieve, that will determine how much you need to put aside.

Your financial planner will help you calculate your current budget and build a retirement plan that is tailored to your needs. He or she will also help you choose the right investment vehicles and simulate scenarios to help you visualize how much money you need. Lastly, the financial planner will help you set up an emergency fund to deal with the unexpected.

Debts and retirement

Have you accumulated debt and are you close to retirement? Don’t panic. There are all sorts of ways to reduce your debt or even eliminate it before you retire. Also, if you are thinking of declaring bankruptcy, in most cases, your RRSPs and pension fund will be out of the creditors’ reach.

Finally, since life is full of surprises, it’s always a good idea to review your retirement plan and strategies with your advisor when your life changes, e.g., when you buy a house or have a new child. That way, you’ll always be on track with your goals. Good thinking and good planning!

1.Source: http://www.rbc.com/newsroom/news/2021/20210827-myths-realities-retirement-poll.html

Three tips for meeting your retirement savings objectives

Start saving as soon as possible

Don’t wait to contribute. Small amounts add up to make a real difference in the long run. Plus, it will save you from having to contribute twice as much when you get close to retirement.

Adopt monthly automatic withdrawals

Rather than putting in a large sum each year, contribute smaller amounts each month and have them automatically withdrawn from your account. This will allow you to budget for these amounts and take the pressure off. Plus, you’ll develop good habits. And you’ll be surprised to find that after a few years, you’ll have saved more than you thought possible.

Add unexpected amounts

Whenever you can, if you receive unexpected money (a work bonus, refund, gift, etc.), rather than spending it on items you don’t absolutely need, add it to your savings. Again, accumulating small amounts will eventually pay off!

Is your retirement approaching and you have debt? Don’t hesitate to contact one of our financial recovery counsellors who can help you find solutions to reduce or eliminate your debt.

Share

Meet with one of our counsellors

It's free, confidential and non-judgmental.

Book an appointment Find an office