How to Plan for Retirement in Canada?May 4th, 2018
The idea of retirement is coveted by many. To life without having to work and to make the most of your life is definitely a special time. There’s infinite possibilities with what you can do, but how do you know if you will make retirement to begin with? Planning for retirement is, without a doubt, an integral part of the process. Without first thinking about retirement, you will never gain financial independence and be able to stop working. That’s why you need to know how to make a plan for retirement in Canada.
1. Think of the future
Regardless of how you wish to spend your retirement, you need to think of a firm financial foundation that can be constructed throughout the years with investments and other means of income. Consult with your partner, if you’re married, and think about your present income, how much you need to save annually, what types of investments and savings funds are available to you, and what your future needs may be. From there, you can start laying out the groundwork for your retirement.
And the sooner you start, the better.
Once you’ve imagined what your retirement looks like and have an understanding of what investments are ideal, you need to start calculating some numbers to establish a budget for now and during your retirement. Think about housing costs, car payments, food, extracurricular activities, insurance costs, and more. Consider what you’ll do during retirement. Do you plan on downsizing or moving? If so, you might want to keep track of real estate trends. Remember to factor in inflation costs (Canada’s average is +2%) too.
3. Make the right investments
There’s a lot of choices you can make when it comes to investments, but you’re going to want to put as much of your retirement savings into a registered retirement savings plan (RRSP) and also a tax-free savings account (TFSA). From there, you can speak with a financial advisor to see what other financial products suit your needs and goals. Some options might be RRIFs and annuities.
4. Other sources of income
Depending on when you start saving and how much you were capable of tucking away, a TFSA, RRSP, and employee pension plan might not last you. Be sure to check in advance if you will be eligible for Guaranteed Income Supplement (GIS), Old Age Security (OAS), and the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) to add additional income.
In order to qualify for these government-run financial support systems, you must be 60 years or older. To qualify for OAS, you must be 65 years or older; but you don’t have to contribute to the OAS to receive benefits from it. Also, don’t delay if you wait to apply, your pension and other payments could be stalled. For instance, you must apply for CPP at least 9 months before retirement if you plan to receive payments on time.
Planning for retirement in Canada is all about setting yourself up well from an early starting point. This means aiming to retirement then starting a RRSP and TFSA to put additional savings into, aside from a pension plan. From there, you need investments to add supplemental income later on in life. Though planning for retirement can be confusing, there are financial advisors who can steer you in the right direction.