Key Considerations for Retirement Planning

After a lifetime of hard work, investment planning, and dutiful saving, retirement will be on your mind. Tropical beaches, new hobbies, time with family and new projects around the house await you. But will you be ready to retire? In a 2023 BMO survey¹, it was reported that Canadians believe they’ll need an average of $1.7 million to retire, yet just 44% of those polled are confident they’ll have enough when it’s time.

If you’re within 10 years of your expected retirement date, while it may seem like you’re finally nearing the finish line, it’s not the time to slow down. You can make a big impact on your retirement in those final years. Not only can you earn more, but you can make key decisions that will alter your future. In this article, we’re going to break down some of those steps to consider as you approach the long-awaited retirement date.

Determine how much you’ll spend in retirement

If you haven’t already figured it out, sit down and calculate your ‘magic number’ to retire with. Even if you’ve already determined how much you need years ago, it is a good idea to review again as these tumultuous past few years might’ve had an impact on your financial situation and retirement plans.

The general estimate is that you’ll need to earn at least 70-90% of your pre-retirement income every year in order to retire. If you plan on travelling, buying luxury items, paying a family member’s post-secondary tuition and spoiling yourself and your loved ones in retirement, you’ll obviously need to plan for that too.

Other than major life plans, your day-to-day expenses may be affected in retirement as well. While the cost of maintaining your health may increase, you’ll likely save money on clothing, commuting, and other costs associated with work.

Calculate your expected retirement income

Once you’ve laid out your expected expenses during retirement years, it won’t hurt to get an idea of your expected income. Most Canadians are eligible to receive income from Old Age Security (OAS) at age 65, and the Canada Pension Plan (CPP) as early as age 60. Lower income seniors may also qualify for the Guaranteed Income Supplement (GIS). While these benefits shouldn’t be relied upon for a primary source of income, they’re certainly a nice supplement.

If you worked in public-service or in certain private sector industries, you’ll also have an employer-funded pension. For years, Canadian schoolteachers, military service people, nurses and more have relied up these pensions for comfortable retirements.

Finally, you have your personal assets like your RRSP, savings account and property. The general rule of thumb is to withdraw 4% of your retirements savings per year, but that number will vary a lot depending on your financial situation and plans for retirement. And if you’ve got property and other assets you plan to sell, that should be accounted for too.

Inquire about pension benefits

Pensions are a significant piece of the retirement pie. Many Canadians will rely on them to bolster their financial standing and quality of life as they age, whether it’s from an employer or the government.

If you employer has a pension plan, check to see how it works. Ask for an individual benefit statement from your employer in order to determine how much you’re due to receive upon retirement. If you’re considering changing jobs this step is extra important. Plus, you may be eligible for partial pension benefits from past employers. And if your spouse is due to earn a pension, you may also be eligible for a portion of that.

Minimize your debt

You don’t want to carry a large load of debt into retirement. In order to truly relax and enjoy your retirement without debt hanging over your head, free yourself of it as best you can before the time comes.

Do you best to pay down your mortgage and reduce the credit card debt. That way, in retirement, you can lower the amount of your savings that will have to go towards interest payments. If your credit card is charging you 20% interest, by paying it off, it’s almost like earning 20% on an investment down the road.

Determine where you’ll live

The place where you plan to retire will have a big impact on your financial situation going forwards. If you plan on living in the same home until the day you die, retirement planning will be a little easier to predict. But if you plan on moving abroad, moving to a different city or living in many different countries, you’ll have to be prepared.

Certain locations will ask for less in income tax and offer more inexpensive housing options. Or maybe you’re moving into a city with a higher cost of living in order to be closer to your family. The location of your retirement will have a big impact, so be sure to plan accordingly.

Don’t stop the RRSP contributions

Your Registered Retirement Savings Plan (RRSP) is one of the best savings vehicles available for Canadians. Until the day you retire, you should be making regular contributions. These savings plans are designed to help Canadians save money for retirement and are incentivized accordingly. Not only will your contributions shrink your total tax bill, but the gains you earn on those contributions will be tax-free. You’re only taxed once you start withdrawing.

Your RRSP can be made up of almost any kind of investment. You can fill it with stocks, bonds, mutual funds and exchange–traded funds (ETFs). Every Canadian should be taking advantage of this opportunity to save money on taxes and contribute to their retirement.

Make sure your investment assets are diversified

Diversification of assets is one of the best ways to protect yourself from market fluctuations during your retirement years. Holding everything in one place is generally not a great idea.

If you feel you aren’t diversified enough, consider investing with our related company, Alitis Investment Counsel. Since 2009, they’ve been offering clients access to alternative investments such as private real estate investment trusts, private equity, and private mortgages. This investment strategy has stood the test of time, protecting portfolios against volatile stock market conditions while delivering solid risk-adjusted returns.