Imagining how you would spend your “dream retirement” is something every Canadian does at some point. Climbing the Andes, buying a cottage or RV, retiring on the west coast, everyone has their own vision of the life they will lead when their working years are behind them. What many of us forget to consider is the costs associated with retirement. It’s easy to imagine the adventures, but without a steady working income, how will you pay your day-to-day bills? Funding a financially secure retirement requires budgeting, saving and planning. So where do you start?
Start with a goal
The best way to start planning for your retirement is to start imagining how you’d spend it. Not just the adventures or investments you’ve always wanted, but the ordinary days as well. With an idea of how and where you will spend your time, creating a plan for saving along with a budget for your retired years is easier to accomplish. Not sure exactly what your dream retirement looks like? You can always begin by listing out your ideas on where you will go, what you would like to purchase, where you would like to live, etc. It’s easier to narrow down your list to what your actual needs and wants are versus your wildest dreams when you have a visual, hard copy to refer to.
Your list of retirement goals may include some incredible things, but it’s important to remember to be realistic. Although it may be your goal to own a 50’ yacht and sail around the Caribbean, that may not be achievable. Retirement should be about enjoying your life but remember that it will still include routine days and events. You don’t want splurge on one thing only to be left with a strict budget that won’t allow room for things like a night out, holidays or family gatherings. Take into consideration your current monthly spending in comparison to your income and try to create an expected monthly budget post-retirement. Having an outline of an expected budget can help you plan how much you’ll need to save to supplement your retirement income.
Start saving now (If you haven’t already)
No matter what point you’re at in your life, saving should be a priority. The sooner you start saving, the more you’ll have during retirement, but that doesn’t mean saving can’t be started at any age. Start your savings strategy by reviewing what you already have in place. This is a great jumping off point for your savings plan because most people consider savings by how much money they have in their bank account. However, you may also be able to create retirement income from the sale of your business, collectibles or downsizing your home. In addition, you may want to also consider selling off investment real estate if you no longer want the stress of being a landlord or paying high fees to someone else. From here, an experienced advisor can help you determine a retirement investment plan that will align with your work, money and life goals and help you identify new ways to grow your money. Consider opening accounts with higher interest rates, tax-free savings or RRSPs to make the most of your money.
Consider your sources of retirement income
Most retirement incomes consist of the “3 pillars”: the Canadian Pension Plan (CPP), Old Age Security (OAS), and your own savings, investments, and employer pension plans. Having these 3 income sources can help with your financial budgeting, but it’s important to understand how much they’ll actually contribute to your finances. CPP will be dependant on how much you’ve contributed during your working years, while OAS is available to any Canadian aged 65 or older without a history of contribution. Personal savings and employer pension plans will largely depend on your own savings strategy and the more you save, the more you’ll have available to you at your time of retirement.
Decide when you will retire
Although we all wish we could retire at 50 and live the life of a retiree, that’s not an affordable option for everyone. Others might even think that 50 is too young because they’ve still got so much to do in their career or the business they’ve worked so hard to build. Deciding when you will retire will also have a big impact on how much money you’ll need to save in order to be financially secure during your retired years. You’ll have to support yourself for the entire length of retirement so, consider the following:
When will your spouse retire? What are their retirement goals? Do they have any savings?
The health of you and your spouse
Your current financial obligation, the length of those obligations, and if there is any financial gain to be had from them
Your living expenses
Are you prepared for any unexpected costs like health emergencies or major home or car expenses?
Postponing retirement until later in life leaves your investments and savings with more time to grow so you are prepared to tackle any expenses that come your way without undue strain or burden. The age at which you retire is different for everyone so planning early with an advisor can help you get there faster, with a solid plan of how you’ll receive that money once you’ve officially stepped away from that day-to-day career.
Factor in inflation
When creating your savings strategy, remember to factor in how inflation will affect your finances. By the time you retire, goods and services will cost more, and your retirement income should be prepared to cover those costs. Although benefits like the CPP and OAS benefits are tied to inflation, your own savings may need to be beefed up in order to maintain a healthy budget and a financially worry-free lifestyle.
The sooner you start planning for your retirement, the better off you will be for accomplishing your goals while still maintaining your financial sustainability. Call Darryl Smith at Synergy Life Financial today to discuss your goals and to access your current savings and financial investments. Together, we can achieve the retirement of your dreams!