Determine your income and expenses, pay off your loans and invest
If you want to plan successfully for retirement, you need to strategize and start saving well ahead of schedule, so you’ll be well prepared when you get there.
Here are seven tips to help you do that.
- Set your time horizon: The younger you are, the more time you have to spend planning, saving and growing your assets for your retirement. Starting younger allows you to take on more risk in your investment portfolio because you have more time to recover from any market adjustments and generate enough returns to stay ahead of inflation, which is now at 30-year highs. Is. The older you are when you start preparing, the more balancing work you have. On one hand, you may need to earn higher returns. On the other hand, you may need to be more cautious in securing your capital as you will have less time to recover losses.
- Calculate your retirement expenses: People used to think that once you stopped working, you would spend less because you would not have to pay for clothes, work travel and office gifts. But you may want to travel, pursue a hobby, or take courses when you retire, and you also need to consider how much it might cost you for a retirement residency or long-term care. So, before you assume that you may only need 70% to 80% of your income today, calculate your costs – because you may find that you need as much income later as you do now. Its with you. Ask your advisor for guidance to help you crunch the numbers and then determine how much you can safely withdraw over the years to come to stay safe for your lifetime.
- Pay off your debt: When you retire, the last thing you want is still to pay off your debts. Therefore, work with your advisor to devise a strategy for paying them, so that they are not a conduit going forward. See if you can consolidate or refinish them, so that you wipe them out before they stop working, or less of a drain.
- Decide when to start taking Canada Pension Plan (CPP) and Old Age Security (OAS): You can start taking CPP benefits anytime between the ages of 60 and 70, so ask your advisor what age would be best for you. There are many tax and income factors that can affect whether you choose to start at 65 or earlier, or later. The same goes for OAS, which you can start getting anytime between the ages of 65 and 70. Meet with your advisor to run the numbers as it may not make sense to delay pay for either of them, even if the monthly stipend increases slightly every year. Do, especially when you keep working.
- Look for multiple income streams: You’ll need CPP and OAS more than government income to retire, so figure out where your income will come from before you retire. Will you have a company pension plan? A guaranteed family heirloom? Rental property that gives you extra income? Or are you planning on consulting or freelance – and how reliable is it? Take the time to calculate what you expect as it is a foundational step for your future plans.
- Save: You should start saving for retirement as early as possible so that you can grow your money. One way is with a Registered Retirement Savings Plan (RRSP), which defers your tax payments until you withdraw the money, but you can also add a tax-free savings plan (TFSA). The sooner you start, the longer it will take for your money to compound. So, even if you invest a little when you are young, it may be more than someone who invests more in middle age. Then, check these accounts with your advisor during your annual review — especially if you’ve opted for automatic contributions, so you may have forgotten about them. When you do this, make sure all names — you and your beneficiary — are up-to-date.
Once you retire, you might want to start withdrawing from your RRSP early, if you’re converting it to a Registered Retirement Income Fund (RRIF), when you turn 71. You can push yourself into a higher tax bracket with your income. Check with your advisor to see how you can best protect your capital so you don’t have that claw back when you reach 71.
- Invest – Assess your risk tolerance, set your investment goals and develop a diversified portfolio: When you start working with an advisor, you should assess your risk tolerance and clarify your investment goals. It’s important to see how much risk you can tolerate and still meet your goals because your money needs to grow well enough to outpace today’s high inflation and what you need to retire . Be honest with your advisor, especially if you are a risk averse. But be realistic about what moderate risk you may have to take to achieve your desired goals. Once they are established, work with your advisor to develop a diversified portfolio that can meet your needs while providing the necessary market buffer.