Whether your retirement is five or 25 years away, it’s never too early or too late to start planning for the future, says investment advisor Bev Moir.
Starting young allows early-career individuals to get into the habit of saving and living within their means (ie. not living paycheque to paycheque), the retirement planner at the Rosedale branch of Scotia-McLeod told the Town Crier in a recent interview. And the years leading up to retirement can be a prime time for big savings.
“As somebody approaches retirement, those tend to be their best income-earning years,” Moir said. “Their kids have completed their education, they’ve paid off their mortgage and the individual is still prepared to continue working, so they’ve got maybe another five or seven years that they can really pack it away.”
Her caution to those banking on government pension plans as their retirement strategy: Old Age Security pension and the Canada Pension Plan leave a little something to be desired.
“For a couple who would both be eligible for OAS and CPP, that’s probably about $25,000 a year,” she said. “So it’s a pretty bare bones retirement existence.”
Here are some of Moir’s tips to consider on your road to retirement:
Many in the early stages of their careers can’t connect with the concept of planning for retirement.
Therefore, it’s more realistic to get this group focused on establishing a regular automatic monthly savings strategy.
“Retirement is just too far away from them for it to be a reality or a concern,” Moir said. “Just to start a regular savings habit is really, really important, because you don’t want them to all of a sudden hit 40 and then they’ve got nothing saved.”
Two good options to consider at this point are a tax-free savings account, even with a low automated monthly withdrawal amount of $25 or $50, or a Registered Retirement Savings Plan. Both of these accrue more interest than a standard savings account.
“The benefit of a TFSA is that it’s a registered account and it allows their savings to grow in compound, tax free,” she said. “It’s quite flexible, in that they can quite easily take the money out, and they can put the money back in.”
Meanwhile, those who are eventually interested in purchasing a house may also be attracted to setting up an RRSP, since money can be taken out and used towards buying a home through the government’s Home Buyers’ Plan.
“They can pull out money, up to $25,000 tax free, and they can use the money as a down payment,” she said. “Taking advantage of that program within an RRSP will often capture the interest of somebody getting started.”
At this stage individuals should already have an RRSP set up, either through their employer or at a bank or brokerage firm, and they should have a comprehensive financial plan.
“Somebody who is mid-career may still be 20 or 25 years away from retirement, but we can make some assumptions on the rate of growth and when they might retire and see if they are on track,” Moir said.
A comprehensive financial plan also looks at whether individuals have adequate protection in place against disability, critical illness or premature death.
Moir recommends having an established relationship with a financial adviser to take advantage of all the financial opportunities that are available.
On an annual basis, individuals look at their net worth to track progress of paying down debt and working towards retirement.
“So what are their assets or savings, minus their liabilities or their debts, and hopefully that number is positive,” she said. “And it may only be $20,000 or $50,000 of positive net worth, but if they get into the habit of tracking that at least once a year then it helps motivate them.”
5–10 years away
With retirement in the not so far away future, older adults should continue to meet with a financial adviser to monitor their progress. At the 10-year mark, and it could be repeated at the five-year mark, they should update their comprehensive financial plan since the potential to earn more during these final years of employment is high.
“It’ll answer questions like what will the retirement look like financially — will they have enough, are they in danger of running out of money — so there’s opportunities to take corrective action, whether it’s tweaking the portfolio and trying to maximize the returns, depending on the risk that an individual is willing to take,” Moir said.
Couples and individuals should start having discussions about the transition into retirement, including how much they need, what sources they will be drawing from during retirement (CPP, OAS, employment pension, unregistered savings), as well as considering things like how they are going to spend their time, where they are going to live, and whether they are going to work part-time or go cold turkey into retirement.
“Sometimes when I’m working with couples there has been a full-time homemaker and then a full-time breadwinner, so that’s a big shift in everybody’s world when all of a sudden the full-time breadwinner comes home,” she said. “So it’s an opportunity to have that type of discussion on some of the softer, more qualitative aspects of retirement.”