How To Financially Plan For Retirement

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Calculate Your Monthly Income

Investing Basics: Planning for Retirement

Use this calculator to estimate how much monthly income youll receive from your savings, government benefits and any pensions.

An inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition rate of just over 2% is often used as a rule of thumb for longer termTerm The period of time that a contract covers. Also, the period of time that an investment pays a set rate of interest.+ read full definition planning. But times of higher inflation rates may mean you should review how much you plan to withdraw from your retirement accounts each month.

Your best strategy will depend on how much guaranteed income you have each month, how much flexibility you have, and how long you need to depend on your retirement savings.

How Much Money Do You Really Need To Retire

You may be wondering what dollar amount will be enough money to comfortably retire. Unfortunately, there’s not a one-size-fits-all number. To estimate how much money you personally need to retire, follow these basic steps:

  • Estimate your total annual living expenses in retirement. You can use the rule of thumb that the typical retiree needs about 80% of his or her pre-retirement income to maintain the same standard of living after leaving the workforce for good.
  • Subtract your expected Social Security benefits and any pension income you expect to receive from your estimated total annual living expenses in retirement to compute your estimated net annual living expenses. Your latest Social Security statement, which you can find on the Social Security website, has an estimate of the Social Security income you are likely to receive.
  • Multiply your estimated net annual living expenses in retirement by 25 to determine a total amount of money you need to save for retirement. Multiplying your expenses in retirement by 25 to determine the total amount of retirement money you need is linked to another rule of thumb called the 4% rule. This rule advises you not to withdraw more than 4% of your retirement savings per year in order to fund your retirement for at least 30 years.
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    There are so many retirement factors to take into account, and everyone has different goals.

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    Thats why Ive put together this ultimate guide on retirement planning in Canada, which pulls together my best content on retirement into one comprehensive article.

    5) Why You Should Invest For Retirement

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    Learn How Retirement Income Is Taxed

    Do you know how your various sources of retirement income will be taxed? Retirees who don’t realize that some of their income may need to go toward taxes are in for an unpleasant surprise. When you are planning for your retirement years, be sure that you’re preparing for any tax impact.

    Have you made a retirement income timeline to show you when different sources of income will begin? You can line up an income timeline against potential retirement expenses to help you manage cash flow.

    When Should You Start Planning For Retirement

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    Ideally, you should start retirement planning as soon as you start your first job. But its never too late to start.

    Create a checklist to map out a route to your retirement. List every goal you need to meet to retire on time and with enough income.

    Questions for a Retirement Planning Checklist

    • When should you retire? Choose the age at which you want to retire.
    • How many years do you expect to live after retirement?
    • What kind of lifestyle do you plan for yourself after retirement?
    • What sources of income do you expect to receive after retirement?
    • How long do you have to save for retirement?
    • What steps can you take to prepare for unpredictable risks such as inflation or recession?

    Refer to your list from time to time to adjust your plans as needed. Take into account changes in employment, new family members and other major life events.

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    Deferred Profit Sharing Plans

    Your employer may also have a Deferred Profit Sharing Plan for you upon retirement. Contributions into this plan can only be made by your employer. Those contributions, as well as any forfeited amounts that are reallocated to a beneficiary, are included in your pension credit for a year. The pension credit represents the benefit earned during the year and it reduces the amount that you can contribute to your registered retirement savings plan in the following year.

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    Next Steps When You Are Close To Retiring

    1. Review the information your employer sends employees about your retirement plan. If you are just starting to plan your retirement and want help doing so, consider consulting with a certified financial planner and pension expert by calling us at 1-888-554-6661.

    2. Make sure your employer is aware of your plans to retire. If your employer is a big company, chances are it has resources to help you. Contact your employer or pension plan administrator to let them know that you plan to retire soon, and ask them the important questions you might have about your pension plan such as:

  • What type of pension plan are you registered in? .
  • How does your employer calculate the amount you will receive when you retire?
  • What happens if you leave the company before you can collect your pension?
  • What happens if the plan goes bankrupt?
  • How much money has been contributed to the plan, and how much money will be left when you are eligible to retire?
  • How much of your contributions are tax deductible?
  • Are you able to retire early? If so, how will it affect your pension?
  • How much will your beneficiaries get if you die before you reach the normal age of retirement?
  • Who will get your pension if you die before you reach the normal age of retirement?
  • 3. Find out if you have to make any special pension-related decisions while still working

    6. Make sure you have life insurance and adequate disability insurance in place when retiring so that your family can be taken care of in the event of your death.

    Life Changes That Can Affect Your Retirement Income

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    Retirement planning is all about making adjustments. Life is unpredictable, and chances are the retirement plan you make at age 30 will look nothing like your reality at age 60. Here are some factors that will make you need to revisit your retirement calculations

    • Significant changes in your income, such as landing a higher-paying job or launching a new business.
    • Large changes in your asset value. Real estate is a good example of this anyone who owned a property in Toronto or Vancouver in the last decade has seen enormous gains in their assets. Albertans have not been as fortunate.
    • Investment gains and losses.
    • Health issues that can cause a change in your life expectancy.
    • Changes in family life such as getting married, having children, or getting divorced.

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    Review Your Insurance Needs

    It is advisable to review your insurance need with your financial advisor. As you advance in age, your insurance needs will change. For instance, if your dependents and debts have gone down you do not need life insurance coverage as much.

    However, critical illness insurance is something to consider and long-term care insurance is also something to look into. Unfortunately, as you get closer to 60, this coverage will be harder to find and, therefore, you should consider taking out a policy as soon as you feel that it is necessary.

    Do The Math On Social Security

    Social Security benefits can add to your retirement income. However, its important to think ahead about when and how you plan to use them.

    Technically, you can begin taking Social Security benefits at age 62. But doing so can reduce the amount of benefits youre eligible to receive. Working while receiving Social Security benefits prior to reaching full retirement age, typically 66 or 67 depending on when you were born, can also shrink your benefit amount.

    On the other hand, waiting until age 70 to take benefits could increase the amount you receive, up to 132% of your normal benefit amount. Whether it makes sense to take benefits earlier or later depends on the other sources of retirement income you already have and whether you plan to work at least part-time in retirement.

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    If You Have A Health Setback Adopt A Positive Outlook

    Much new research indicates that you are who you think you are. The power of positive thinking is turning out to be very true.

    The Journal of the American Medical Association reports that seniors with a positive bias toward themselves and life are 44 percent more likely to fully recover from a bout of disability than someone with a negative outlook.

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    Retirement Planning

    The Portfolio Doctor assesses the health of the fund portfolio, examines the schemes and their suitability with regard to the goals and, if required, recommends corrective measures. The advice given is based on the performance of the funds, the risk profile of the investor as well as his financial goals.

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    Will The Retirement Age Increase Or Change

    The retirement age will in all likelihood someday be raised above 65. In 2012, then Prime Minister Stephen Harper announced that between 2023 and 2029, retirement age would be raised to 67, to put it in line with changes or planned retirement age hikes in Australia, Britain, the United States and many other countries, which were raised to account for increasing lifespans of Canadians. In 2015, as soon as he was elected, Prime Minister Justin Trudeau cancelled Harpers plans. Considering articles like this one, arguing that 65 places a too great economic strain upon our government, its quite likely that any new administration will again consider raising retirement age to 67 or even higher.

    Apply For Government Benefits

    Its important to know what kinds of benefits youll be able to receive from the government in retirement. Social Security and Medicare may be very important to you, depending on what other income streams and insurance options you have. However, its often best to delay receiving Social Security, if possible.

    Those who put off drawing on their Social Security benefits will get more per monthall other things being equalthan those who claim it early. If youve successfully planned for retirement, you shouldnt have to take your Social Security benefits too early.

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    Know Your Best Years May Be Yet To Come

    This is likely to surprise you. I was kind of shocked. But, a few years ago researchers identified the two ages in an adults life when you are likely to be at your happiest.

    Experts from the London School of Economics and Political Sciences found that happiness peaks at the ages of 23 and 69.

    Whoa! Sixty-nine! That is older than many of us.

    Learn more about the surprising age when happiness peaks.

    Start As Early As You Can And Contribute As Much As You Can

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    Its truly never too late to start saving for retirement. The important thing is to start! A great first step would be to open an RRSP if you dont yet have a pension plan through work. Its a process that will take you about ten minutes and wont even require you to invest a dime. How much should you contribute? The wiseguy answer: as much as you possibly can, because the more you have, the less youll need to worry about running out. The specific answer is a bit more complicated. Experts have suggested that the magic retirement number should be ten times your final income, and in order to get there, you should aim to have:

    • At 30: One year of salary saved.

    • At 40: Three times your salary saved.

    • At 50: Six times your salary saved.

    • At 60: Eight times your salary saved.

    • At 67: Ten times your salary saved.

    Naturally, every retiree is bound to be different, and no one formula will be perfect for everyone. It will certainly be worthwhile to at the very least reach out to a professional financial advisor to discuss a more custom plan for your retirement.

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    Start A Retirement Planning Club

    We all need help with our retirement plans but very few of us turn to friends for that support. A retirement club kind of like a book club where you discuss retirement topics instead of novels can provide an ideal and friendly forum for helping you have a more secure future. Learn how to get started. Or, try a retirement book club.

    Guarantee A Portion Of Your Income

    Another strategy worth considering to take pressure off your portfolio is guaranteed income.

    Rob Stevens, a financial planning strategist at TIAA, recommends that retirees use a combination of Social Security and annuitiesor pensions if youre lucky enough to have oneto cover around two-thirds of your spending. The rest comes from portfolio distributions.

    To illustrate this approach, consider a 65-year-old woman who needs $50,000 a year in income and has $750,000 in her individual retirement account .

    Following Stevenss recommendation, that would require about $33,500 in guaranteed income.

    Assuming she would receive approximately $20,000 a year in Social Security payments if she retired today, shed need an additional $13,500 in annuities to hit the two-thirds threshold. Stevens advises that people use both a fixed annuity and a variable annuity, with the latter serving as an inflation hedge.

    To provide annual income equal to $13,500 from annuities, Stevens estimates youll need to plunk down a total investment of about $210,000.

    That leaves $540,000 left in her IRA. To cover the other $16,500 of income shell need, she would initially draw down 3% annually from her portfolioif she didnt use annuities, that amount would be 4%.

    This is the big benefit of a diversified income plan. Less stress on your portfolio, and less likelihood that a bad sequence of returns would cause it to run out of money over a long retirement, says Stevens.

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    Create A Realistic Budget

    The first thing will be to get organised you know, the big, bad B-word, it gets a bad rap, its budgeting, says Lauryn Williams, a Dallas-based financial planner.

    Budgeting can help you save more because youll learn where your money is going, which can free up opportunities to shift your priorities.

    Ms Williams suggests creating a bucket budget, which is a set amount you can spend in each financial category. Examples of buckets include household items, recurring bills and entertainment. Retirement can be a bucket, too.

    Its not accounting for every single penny, every single transaction, which can be really overwhelming and create more financial stress, especially if youre doing it on your own, she says.

    Another budgeting tip Maggie Gomez, a financial planner based in Orlando, Florida, suggests is downsizing, so you have more money to pump into retirement savings. For instance, you could get a less-expensive car or downsize to cut housing costs.

    Youre not reducing the quality of your life. Youre giving yourself a better future, and its not going to be much longer until you really feel those rewards, she says.

    Average Canadian Retirement Expenses

    Planning for your Retirement

    The 2019 Survey of Household Spending by Stats Canada found that the average consumption spending per household for Canadians over the age of 65 was $68,980 .

    If you assume that you and your partner will retire at age 65 and live until age 82, this will work out to be $68,980 * 17 = $1,172,660 total spent during retirement per household.

    Note that these are average numbers, and yours could be much higher or lower. This is just a good starting point. Lets dig a little deeper now:

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    Think About Your Goals

    There are many things you can do ahead of time. Think hard about the lifestyle youll want when you retire. Where do you see yourself in the next 10, 20 or 30 years? Which goals really matter to you? Do you think youll keep working part-time? Travel? These goals can all be quantified they will guide discussions with your advisor and significantly influence your financial plan, Mohamed Wakkak explains.

    Have you tried our retirement planning calculator? It may be a good idea to give it a go before meeting with your advisor.

    Myth: You’ll Only Have 70% To 80% Of Your Pre

    It’s not uncommon to hear that because you’re no longer paying payroll taxes or making 401 contributions, you’ll have some extra income as a result. While this may be true, it can be further amplified by downsizing your home, reducing extra maintenance, utilities and other home related costs. However, you’ll need to consider how your lifestyle may be changing as well. Perhaps you intend to travel more now that you are no longer working full time or you may be interested in getting back into some long-lost hobbies. New or increased activities like these are going to add costs to your budget at the same time as your previous expenses are reduced. This is why it’s important to consider and plan for the type of retirement you want, and ensure all aspects are considered.

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