Flash Retirement

Retirement: Planning for Peace of Mind

Why plan for retirement? Simply put, to assess your retirement goals and how much they'll cost to make sure you have the money you need when the time comes. You'll still have good years ahead of you after you retire. But to maintain your standard of living without a regular income, you'll need to do some long term planning first. Here are a few tips to determine how much income you'll need.

Annual Income Needed for Retirement

If you retire at 65, you'll need about 70% of your average annual gross income in your last 3 years of work to maintain your standard of living. A comparative budget is the best way to plan. The following table can help you draw one up—it will give you a general idea of your expenses and the income you'll need at retirement. Be sure to fill it out as accurately as possible to get a realistic idea of your requirements.

Annual Expenses Current Expenses Estimated Expenses at Retirement
Mortgage/rent __________ __________
Phone, cable, Internet __________ __________
Electricity, heating __________ __________
Taxes (school, municipal, etc.) __________ __________
Home repairs and maintenance __________ __________
Insurance (property, life, prescription medication, disability, etc.)  
__________
 
__________
Food __________ __________
Clothing __________ __________
Healthcare (optometrist, prescription medication, dentist) __________ __________
Travel (public transit, car payments, insurance, parking, vehicle maintenance, gas)  
__________
 
__________
Personal expenses (hairstyling, movies, restaurants, leisure)  
__________
 
__________
Caring for parents __________ __________
Loans __________ __________
Taxes __________ __________
Vacations __________ __________
Other __________ __________
Total Expenses __________ __________

Annual Income Current Income Estimated Retirement Income

Employment
 
__________
 
__________
Québec Pension Plan, Canada Pension Plan, and other public pensions  
__________
 
__________
Investments __________ __________
Pension funds (SPPs) and other private plans  
__________
 
__________
Old Age Security (Canada) __________ __________
RRSPs and RRIFs __________ __________
Unregistered savings __________ __________
Business income, rental income, etc. __________ __________
Other __________ __________
Total Income __________ __________


Things to Do BEFORE You Retire

30 years before retirement...

  • Set aside a portion of your gross income (depending on your supplemental pension plan and your means) to invest in a savings vehicle, preferably registered (e.g. RRSP or TFSA). Check all notices of assessment from the Canada Revenue Agency to find out how much you're entitled to invest each year in registered savings. The earlier you start saving, the greater your interest income will be and you may be able to retire earlier.
  • If you get a tax refund, interest income on your investments, or a salary increase, think about investing it in a savings vehicle, preferably registered.
  • If you contribute to a supplemental pension plan, find out about the terms. What will your pension be if you keep working for the same employer? What are the criteria for early retirement? At what age can you retire and how will this effect the amount of your annual pension?
  • Diversify your investments and maturity dates to optimize returns and account for risk.
  • Live within your means and give yourself a cushion so you don't fall into the trap of exorbitant credit and unreasonable expenses (e.g. overly luxurious housing).

20 years before retirement...

  • If you own a home, make sure you'll have your mortgage paid off. If not, shorten the term to pay it off before retirement.
  • Talk to your spouse and make sure your retirement goals are compatible. Are you planning to retire early, shorten your work week, make a career change or travel?
  • Continue saving for retirement in a vehicle like an RRSP, and consider contributing to your spouse's RRSP. A TFSA is also a good idea.

10 years before you retire...

  • Think about how much money you'll need for certain unavoidable expenses—renovations, replacing appliances, your vehicle, etc.
  • If you haven't been maxing out your RRSP, take advantage of any unused deduction room now. If you will be eligible for the guaranteed income supplement (GIS), think about investing in a TFSA.

In short, preparing for a comfortable retirement that meets your financial goals by the time you retire is a long term endeavor. To make sure you're ready, list your plans and calculate how much they'll cost. Your financial institution has specific tools to help you plan effectively. A happy retirement is a result of preparation!

This text is intended exclusively to provide general information on financial security at retirement. This information may not be appropriate to the reader who wishes to obtain particular information on one of the treated subjects and cannot be a guarantee for results. It is up to the reader to make pertinent expert advice requests. This information capsule does not bind partner providers of these information.

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