When preparing for retirement, there are a lot of things to consider. Some can be fairly accurately predicted. Others—like the medical expenses you will incur—are much harder to pinpoint. The following provides some key categories to consider to improve your retirement readiness.
The length of your retirement is essentially based on your expected life expectancy. Of course, this is unknown, but it’s important to put a ‘best guess’ that is on the generous side so you can plan to NOT run out of money.
You’ll also need a general sense of what your annual expenses will be in retirement. The following are some key categories that should be factored into your estimate of expenses:
The average rate of inflation is generally estimated at 2%. It can vary from year to year, but this estimate is fairly safe for planning purposes. When you determine your expenses in retirement, make sure to factor in the price increases you will face due to inflation.
Most Canadians can rely on at least some form of government-based income in retirement. You can get fairly accurate projections of your expected OAS and CPP benefits by visiting the Service Canada website. And you can contact your employer for any employer pension income.
A big part of retirement readiness is having enough savings. Many Canadians rely on RRSPs or other investments to save for retirement. The amount you have now, and the projected growth it will incur before you retire are key things to factor into your retirement plan.
Income tax principles do not change in retirement. You are still responsible to pay tax on any income you receive. However, many people are in lower tax brackets in retirement than when they are working.
When you have determined what your annual income needs should be, remember to keep income tax in mind. (You can learn more about this topic here.)
It’s always a good idea to talk to a certified financial planner about your retirement readiness. But addressing the items outlined above should give you a pretty good idea of whether you’re ready or not.