Are you dreaming of becoming a world traveller in retirement or adopting a quiet life close to your family? Whatever your aim, to make your dreams a reality, your financial plan needs to take your goals into account.
How much you need to save will depend on the nature of your goals and dreams. Still, when setting your savings plan, remember that there are also other factors to consider. For instance, you may have overlooked additional potential income streams that may be available to you in retirement, beyond what you may have put away in your Registered Retirement Savings Plan (RRSP).
It’s important to be aware of all of your potential income streams since they can have a significant impact on how much you need to save for retirement. These income streams can be from government sources, like the Canadian Pension Plan (CPP), or non-government sources, such as a company pension plan or income from a rental property.
While the amount of income those streams can provide will vary depending on your circumstances, understanding how each of these income streams can work together will help you to determine how much you need to save to realize your dreams and goals.
Chart your goals and vision for retirement
First, ask yourself, ‘What are my retirement goals, and what type of retirement lifestyle do I want to achieve?’ To answer this question, you may want to think about what’s important to you today and how that translates into retirement.
If you’re part of a couple, be sure to work together to establish your shared goals. Start by identifying some activities you currently cherish most. For example, if you value exploration and adventure, you may want to travel more or own a vacation home in retirement. Or, if you value family, you may want to continue saving for a child’s education, take a year off with them, plan to leave an inheritance, live close to family or continue to support adult children at home.
Estimate how much you need to save
The retirement income you’ll need will reflect the nature of your retirement goals. For instance, will you be satisfied with a relatively humble, less expensive lifestyle, or do you see yourself travelling regularly, dining at fine restaurants or renovating your home?
Thus, setting retirement goals is essential in determining the approximate total amount of retirement savings you’ll need. Keep in mind that you’ll generally require between 50% and 70% of pre-retirement income to maintain your standard of living in retirement .1 This total amount may also depend on your target retirement age.
However, in an unpredictable job market, you may have to gather enough savings sooner than expected. Consider mapping out different work departure scenarios. A recent study found that nearly half of the retirees surveyed retired earlier than planned due to circumstances beyond their control. About half of these retirees (48%) said they were worried about outliving their retirement savings .2
Maximize the income streams available to you
Understanding what sources of income and investment tools are available and how to optimize them, before and after retirement, will form key parts of your plan. There are several different retirement income
sources to consider, such as:
- Registered Retirement Savings Plans (RRSPs), which are converted into Registered Retirement Income Funds (RRIFs) in the year you turn 71
- Canada (or Quebec) Pension Plan, Old Age Security, Guaranteed Income Supplement
- Company pension plan
- Personal savings and investments, including Tax-Free Savings Accounts (TFSAs)
- Income from a rental property
- Home equity
- Continuing employment income (if you choose to work into retirement)
Retirement planning isn’t a one-size-fits-all exercise. It requires carefully assessing your priorities and a thorough plan to ensure you achieve your retirement goals. Whatever your retirement focus, I can help you determine how much you need to save and build a financial plan that integrates the right income sources and investment strategies for you. Contact me today to determine if an RRSP contribution before the March 2, 2020 deadline is beneficial to you.
1Ontario Ministry of Finance, Ontario pensions and retirement savings, Updated March 22, 2019
2Angus Reid Institute, Retirement in Canada: Lots to Enjoy About ‘Golden Years’ but Financial Worries Loom Large – Especially for Those Still Working, July 2015