Whether your retirement begins tomorrow or somewhere down the road, the time to begin real retirement planning is now – especially when it comes to ensuring you’ll have the retirement income you need to realize all your retirement dreams. Here’s your retirement planning quick start guide.
1. Decide when your want to retire If you decide to retire ‘early’ you’ll have fewer years to save for retirement. If you retire after 65, you can continue the tax-saving, income-building advantages of investments held in your Registered Retirement Savings Plan (RRSP) until the end of the year in which you turn 71.
2. Decide on your retirement lifestyle Will you keep working at least part of the time, or even start a business? If so, you can save less in advance because even a little extra employment income can go a long way.
3. Conduct a retirement/income analysis Estimate your monthly retirement living expenses like utilities, insurance and mortgage payments. Also consider additional costs such as travel, hobbies, and other forms of entertainment.
4. Know your government sources of income Find out how much income you can expect from government sources like the Canadian Pension Plan (CPP) or the Québec Pension Plan (QPP) and Old Age Security (OAS). Get good info at http://www.servicecanada.gc.ca/eng/services/pensions/infocard/janmar14.shtml.
5. Know your pension at work – if you have one Determine whether your employer-provided pension plan is a defined benefit plan or a defined contribution plan. If it’s a defined benefit plan the Pension Administrator can give you a monthly benefit payout estimate. If it’s a defined contribution plan, you’ll have to do your own estimate of monthly pension.
6. Add in your savings Know what you can expect from investments held in your Tax Free Savings Account (TFSA), RRSP and other investments. Also know the rules governing the withdrawal of income and the taxes that may be applied.
7. Do the math Add up all sources of monthly retirement income including your savings and investment withdrawals. Compare this against your estimate of monthly retirement living expenses. If you come up short, you may need to re-think your planned retirement lifestyle, ramp up your savings strategies, or both.
8. Aim to manage taxes in retirement Strategies can include income or pension splitting with your spouse, sharing CPP/QPP benefits, and investing in a tax-advantaged mutual fund-based Monthly Income Portfolio.
9. Get professional advice Now that you know exactly what you want in retirement, meet with your professional advisor to develop a plan that will ensure you are adequately prepared for the costs of your retirement.