A recent poll by CIBC noted that the vast majority of Canadians do not have a retirement plan in place to help them achieve the lifestyle they dream of in their golden years – and women are even less likely than their male counterparts to be retirement-ready.
How do your retirement savings measure up against these findings? Can you confidently say you’re on track to live your retirement years in comfort? Here are four tips to help you develop a financial plan guaranteed to give you greater security and confidence about the future.
- Start now
We can all benefit both financially and emotionally from purposeful planning but getting started can feel daunting. Here are a few things to keep in mind: Consider both your short- and long-term goals, engage your family as a financial plan needs to support everyone’s life goals, start by putting a plan in place to track where your money is going, follow a budget, pay off debt and start saving. Even if it’s a minimal amount, never underestimate the long-term impact of small savings habits. Here’s one small example of how saving a little today can pay off big tomorrow: If you set up an automatic investment of $50 per pay (bi-weekly), earning an annual average of 5%, it will grow to over $90,000 in 30 years.
Not sure where to find the money? Consider this tip from Warren Buffett: "Do not save what’s left after spending, but spend what’s left after saving." Or this other wise piece of advice: "Pay yourself first," says The Wealthy Barber. You’ll be so glad you started when you did!
- Redefine retirement
A number of dynamics over the last few years have made it more challenging to save and plan for retirement. We’re seeing house prices escalate by double digits and debt levels rise higher than ever. Wage increases are crawling by single digits, savings rates are low and there’s a decline in company-defined benefit pension plans. Not to mention, people are simply living longer.
Perhaps “retirement” needs to be redefined or re-imagined in less traditional terms. Instead of working towards a set date or age at which time you stop working and start receiving a pension in place of a salary, consider a staggered retirement, transitioning to something part-time and low stress, picking up an “encore career” or turning a hobby into a small income-producing venture.
An observation with which so many of us can relate: “The older I get, the faster time goes by.” Several studies suggest this is all about perception – as we age, we fall into routines more and leave the years of learning or trying new experiences behind us. As time goes by, the days and memories blend together making it seem as if the years are flying by. To slow time down in later years, your retirement goals should include activities to keep your brain active – get out of your comfort zone, learn new skills, have different experiences and visit new places.
- Plan your retirement income
There is no doubt that you work hard over many years to save up for retirement… years of RRSP contributions, TFSA payments and possibly non-registered or corporate account contributions. Now it’s time for those savings to live out their purpose. Creating an income stream involves taking a leap and shifting your mindset from one of accumulation to dispersal. This shift to begin drawing an income from those hard-earned investments can be emotionally difficult and financially complex.
The other piece of the puzzle is determining how much you will receive in government pensions. It may surprise you that, although the maximum Canada Pension Plan retirement benefit in 2019 is $1154.58 per month, the average amount received for new beneficiaries (as of Oct 2018) was only $664.41 – so be sure you are up to date on how much pension money you will actually receive, as it may be lower than you anticipate. Find out how much you are entitled to.
As of 2019, Old Age Security adds another $601.45 per month. One caveat to be aware of is if all your net income is greater than $77,580 as of 2019, this amount will be “clawed back” 15% for every dollar over that amount, and withheld entirely when net income is at least $125,969. Wouldn’t you like to hold on to as much of this income as possible? With a bit of strategic planning it’s possible.
- Don’t forget the unpredictable
Individuals facing sudden retirement as a result of an unexpected life event, such as job loss, business failure, personal injury, family sickness or death, can usually manage the loss of income associated with some of these challenges through an insurance plan. But many financial risks associated with a serious illness or injury can only be addressed through a comprehensive retirement financial plan which includes critical illness and long-term care coverage. An important consideration when you take into account that with today’s medical advances you are far more likely to fall critically ill and survive than to die unexpectedly.
Although a detailed retirement plan won’t help you avoid what life has in store, you will be able to successfully navigate any rocky financial challenge that comes your way.
Erin Gendron is an Associate Investment Advisor & Financial Planner with HollisWealth®, a division of Industrial Alliance Securities Inc., which is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. The opinions expressed herein are those of Ms. Gendron alone and may not be aligned with the opinions and values of Industrial Alliance Securities Inc. or any of its affiliated companies.