It’s not easy to sum up everything that goes into a good retirement plan, but these golden rules will take you a long way.
Establish a saving habit – It’s never too late to start saving for retirement. And hopefully, by this time in life, you have more disposable income to invest for the future. You’ll be glad you did.
Know what you own – No matter how much you’ve saved, now is the time to really understand what investments your money is in so you can ensure your long-term needs will be met.
Assess your risks – Stock market volatility, poor health, family emergencies. Bad stuff can happen. That doesn’t mean we can’t prepare for it with things like insurance or emergency savings. But you can’t plan for it if you don’t face it. (Read more on financial risks here.)
Consider the timing – When you retire is a huge factor choice. The earlier you retire, the longer your savings have to last. The later you retire, the more time you have to save. This is a highly personal decision. There’s no one-size fits all. But choose wisely.
Know your expenses – Many people can’t tell us how much their monthly expenses are now, let alone what they may be when they retire. Think hard about how you want to live in retirement. Consider what you’ll want to enjoy while you’re relatively young and healthy, and what living adjustments you may need to make when you’re not. (You can use this tool to get started.)
Understand your government benefits – Most people know they can get CPP and OAS. But many don’t know the actual amounts they will receive, or how their benefits are affected by early or later retirement. As they say, it pays to know.
Pay attention to your debt – There’s certainly nothing wrong with some debt in retirement, but just be careful that your debt repayment obligations don’t cast a shadow on what are supposed to be your golden years.
Factor in inflation – Inflation, on average, increases by two percent each year. So something that costs $100 today will cost $142.97 in twenty years. Your investments need to keep up.
Don’t forget about taxes – Even though your retirement income is in the form of government benefits, a pension or withdrawals from your investments, you still need to pay taxes. When determining how much you need to save, make sure you’ve factored in the taxes. (Read more about taxes in retirement here.)
Talk to a financial advisor – We can’t stress this enough. The first nine items should give you a sense of the complexities in each decision. Do yourself a favour, and get some advice from an experienced financial advisor that you trust.