How do I… plan for retirement

How to begin your retirement plan, today

The idea of retiring may seem like a far-off prospect for many of us. But, with modern medical advances and increased standards of living, Canadians can spend one fifth of their lives in retirement. So really, it’s never too early to start your retirement planning. The sooner you do, the more time your savings have to grow and the more retirement income you’ll have to enjoy.

Yet, planning for retirement can be overwhelming. Where do you begin? How much should you save? Where should you save it? What do all these retirement planning acronyms mean – CPP, RRSP, RRIF, TFSA? Don’t worry, that’s why we’re here to break it all down into easy steps. 

Three ways to save faster for retirement

As you start retirement planning, you’ll find lots of solutions to help accelerate your savings. But there are three main options it’s typically wise to include:

1. Registered Retirement Savings Plan (RRSP)

This registered government plan is specifically designed to help you save faster for retirement. RRSP contributions are tax deductible. This means that when you put money in, you can subtract that amount from your taxable income and reduce how much you owe. Any interest or income you earn from investments in an RRSP are also tax free until you withdraw the money, which helps your savings grow faster.

2. Tax-Free Savings Account (TFSA)

If you’ve maxed out your RRSP contributions, the TFSA is another powerful savings solution. It offers tax-free savings growth too with some key differences. Contributions aren’t tax deductible the way they are with the RRSP. But interest and income earned in this account stay tax free even when the money is withdrawn. So you’re never taxed on them.

3. Creating a financial plan

Working with an advisor is a great way to ensure your finances are in order, particularly your retirement planning. They’ll help review your financial situation and priorities. Then they’ll build a personalized, step-by-step plan you can follow to achieve all your goals. So, if you have any questions or concerns, book a chat with an advisor to get some guidance and reassurance you’re on track.

How to plan for retirement at any age

Depending on your age, stage in life, goals and expectations, your retirement planning will likely vary. But here are some general guidelines on developing the best retirement plan for you:

Your 20s: A smart time to start

If you’re in your 20s, saving for retirement is probably the furthest thing from your mind. Buying a home seems a million years away, let alone retiring. While you probably still have a student loan, now is typically the time when you start a salaried position and begin to earn regular paycheques. If you have any debt, paying that down should be your first priority, especially if you have anything owing on your credit card.

Your 20s are also a smart time to start contributing to a Registered Retirement Savings Plan (RRSP) because time is on your side. The power of compound interest means that your hard-earned money can grow significantly. And those RRSP contributions don’t have to be big at this stage. If you can afford to buy a $5 latte a few times a week or spend $40 on a night out, you can afford to contribute to an RRSP. Every little bit counts!

As we mentioned earlier, a Tax-Free Savings Account (TFSA) is also a helpful option at this point. Whether an RRSP, TFSA or both are right for you will really depend on your situation. There are pros and cons to both. That’s why chatting to a Gulf & Fraser advisor is also useful! They can help you decide what best fits your needs and your retirement planning goals.

30s: Settling into a plan

In your 30s, you probably have a steady income, but you might also have more expenses—transportation costs, rent or mortgage, maybe even a baby.

If you don’t already have a financial plan, it would be a great idea to create one. If you made a financial plan in your 20s, now’s the time to revisit and revise your plan to ensure it's still serving your needs.

While you might have more pressing expenses, don’t let that be an excuse not to contribute to your retirement plan. Pay yourself first by setting up a pre-authorized contribution (PAC) from your paycheque directly into your RRSP and you will hardly notice a difference at the end of the day. Now is also a good time to assess your overall comfort level with investment risk and think about incorporating higher return investment solutions. You have plenty of time before retirement, so you don’t have to worry about short-term market fluctuations.

40s: Over halfway there

If you’re in your 40s, but don’t have a retirement plan, don’t panic! It's not too late; you still have over two decades left to save and invest. 

That said, now is not the time to hit the snooze button. You should have a clear idea of how much you can reasonably expect to contribute every year and how much you’ll need in retirement to maintain your lifestyle. If you act now and invest wisely, you should be able to contribute enough to live your retirement years in comfort.

When it comes to RRSPs, always take advantage of an employer-matching RRSP plan, and reinvest your income tax returns back into your RRSP.

50s: Crunch time

Finally, your expenses are starting to decrease, and you’re entering your peak earning years. For these reasons, your 50s are an excellent time to ramp up your RRSP contributions. 

It’s also time to pay closer attention to two things at this stage:

• Your Return on Investment (ROI) to make sure your savings are growing well.

• Your diversification to make sure you have a well-balanced portfolio. What does that mean? Basically, make sure you invest in a wide variety of investments to minimize risk.

60s+: Home stretch

Your 60s typically mark your final working decade. This is the time to seriously assess your retirement plan. How close are you to reaching your goals? Do you want to retire early? Do you have enough to retire comfortably in the next few years? Will you be retiring at 65, 67, or older?

The date you set for retirement should depend on when you are ready to retire, not how old you are. 

Retirement time: Transfer your RRSP into an RRIF

Once you’re close to retirement, it’s important to meet with a financial advisor to come up with a withdrawal plan. Any amount that you have in an RRSP must be transferred into a Registered Retirement Income Fund (RRIF) by the end of the year you turn 71. Remember that any money you withdraw from your RRIF will be taxed based on your overall income and can impact your government benefits (CPP, OAS, GIS). So it’s important to take money out strategically to maximize your savings.