What do you want to do when you retire? It may be a long way off (and a hard question to answer), but it’s important to think about life after you stop earning a regular paycheque. Whether your goal is to travel, learn a new skill, indulge in hobbies or simply maintain your current standard of living, you’ll need to rely on savings to cover the cost of these activities, in addition to your everyday expenses.
By doing the groundwork now and learning how much you need to save, you can let your dreams drive your retirement, rather than letting available funds drive your dreams. Here are three things you can do right now to boost your retirement savings, and three tips to help you a few years down the road.
3 things for today
- Cut spending. Most experts agree that you should save at least 10% of your income, with a portion of that put aside for emergencies. It’s easier than you think to find some extra cash for your savings by trimming unnecessary spending. Try these tips for sustainable living and make sure you’re maximizing your savings on home and car insurance.
Start small. If you’re able to save as little as an extra $50 a month, you can invest it in an RRSP or TFSA through segregated funds, which offer powerful guarantees. Whatever you do, spending less now means more for your retirement.
- Maximize investments to pay less tax. All Canadians have access to a variety of tax-sheltered accounts, like RRSPs, RESPs and TFSAs, which delay or reduce taxes. Take advantage of these accounts by using as much of your contribution room as possible each year. If you’re not sure which type of account is best for you, this infosheet can help.
- Become debt-free. Eliminating debt before you stop working decreases stress on your reduced income – and leaves more room to do what you want in retirement. As soon as you can, start paying off credit cards, mortgages and loans, so you’re free of these burdens when you retire.
3 things for tomorrow
- Consider downsizing. As you near retirement, think about lowering your larger expenses, like your home and vehicle. If you’re paying for square footage that you don’t need, opting for a smaller home will allow you to invest more for later. You can also save on car expenses, like gas and insurance, with a more affordable, fuel-efficient vehicle.
- Work longer and ease into retirement. Retiring doesn’t mean you have to stop working entirely. Working fewer hours or getting a part-time job is a great way to transition into retirement and maintain a steady cash flow. Try calculating how much your retirement income will be with government pensions and other programs. And, when the time comes, you can choose various registered and non-registered retirement income options, including RRIFs and annuities.
- Prepare for the unexpected. Most people underestimate healthcare costs in retirement. As you age, your risk of developing a critical illness increases. It’s important that your retirement plan sets aside funds to cover personal healthcare. You can also investigate health and critical illness insurance from private companies.
A Co-operators Financial Advisor can help you create a plan that works for you now and helps you reach your financial goals for the future. Be sure to ask us about segregated funds: they’re only available from insurance companies and allow you to invest as aggressively or conservatively as you want, while protecting your capital.