After working extra hard to earn money in order to live comfortably, the one thing everyone looks forward to is retirement. So the last thing you want is to reach retirement age only to find out that you won’t be able to make ends meet living the way you want to. That’s why below you’ll find tips and tricks on how to plan for retirement so that you can live the retirement life of your dreams.
Create an emergency fund
Just like any other stage in your life, you should always have an emergency fund in case you have to pay for unexpected expenses. Having an emergency fund ensures that you never have to dip into your savings for house or car fixes you never anticipated. It can also ensure that you don’t put those expenses on your credit card or take out a loan. Those high interest rates will only serve to make you pay more down the line — and that’s money you could have put towards your retirement savings.
Figure out how much you’ll need
In order to figure out how much you need for retirement, there are a few things you should do and keep in mind.
1. Figure out what your goals are
Before you begin figuring out how much you’ll need and how much you’ll have to set aside, you have to figure out what your goals are. Ask yourself what you would like to be doing during retirement. Would you want to spend more time traveling or would you want to pick up new hobbies? Do you have children or grandchildren that you would like to take care of, and do you plan on moving into a smaller home? All of these questions will help you figure out how much you can expect to live on.
2. Figure out when you’d like to retire
Deciding at what age you’d like to retire will have a significant impact on the amount of money you’ll need to set aside for your retirement. You want to ensure that you’ll have enough money to cover the entirety of your retirement. If you’re married then you’ll both need to have a conversation about whether you’d like to retire at the same time. In a lot of cases, separate retirement is preferred, because it will give each of you more time to find a new sense of identity after letting go of the one thing you spent the majority of your days doing.
3. Compare your current lifestyle to your expected lifestyle
There are a few things to consider when comparing your current lifestyle to your expected one. After figuring out what your goals are, draw up a list of expected costs and compare them to your current ones in order to properly make adjustments. If you’re used to driving to work and paying for parking, and you’re no longer expecting to do so in your retirement, you can put that money towards something else. You should also draw up a list of your guaranteed income sources such as Old Age Security, Canada Pension Plan (or Quebec Pension Plan), Guaranteed Income Supplement, or personal investments and savings. Don’t forget to look into places in which you’ll be able to get senior discounts.
4. Calculate for inflation
One of the most important things to keep in mind when planning for your retirement is to make sure to take inflation into account. Forgoing this is one of the biggest mistakes you could make, because inflation could have a huge impact on the quality of your retirement. After all, you can’t expect your goals to remain the same if you haven’t calculated the rising cost of goods and services.
According to the Government of Canada, inflation is calculated using the consumer price index (CPI). Recent years show that the annual rate of inflation is 2%, which means that goods and services have been costing 2% more each year. However, this year’s inflation rate has increased to a whopping 6.7%! This is crucial when planning how much you want to save for retirement. The good news is that Old Age Security as well as the Canada Pension Plan are not affected by inflation — when the cost of goods and services rises, so will the value of your benefit. As for employer pension, you’ll have to ask your employer.
It’s important to consider inflation because you might not be able to maintain your lifestyle once inflation is calculated into your retirement plans. Calculating for inflation may mean that you have to make certain adjustments.
5. Create a budget
After figuring out what your goals are, drawing up a list of expected costs and sources of guaranteed income, it’s time to create a budget. This is a step you definitely cannot forgo if you want to live a financially stable and healthy retirement.
To be safe, you should follow the 70% rule. This means calculating a budget for an income that is 70% of your regular income. This ensures that your lifestyle doesn’t have to change too much and will make the process of retirement easier to deal with.
If you’re having trouble setting money aside for your retirement because you have too many debts and not enough income, then contact a licensed insolvency trustee as early as you can. You LIT will make sure to provide you with the best possible solution for your financial situation, whether that be debt consolidation, consumer proposal, personal bankruptcy, or budget reorganization. Your LIT’s main goal is to make sure that you become financially healthy, so that you never have to worry about making ends meet once you decide to retire.
