Retirement Planning Guide: Tips for a Safe, Secure, and Fun Retirement

Whether you plan to retire at 65 or 70, the simple fact is that we will all retire eventually. A common fear for a lot of people is not retiring with enough money to have a comfortable retirement. A retirement plan helps you put strategies in place to ensure this does not happen. Planning for retirement is a complicated process but at the end of it, you should have a large enough financial cushion to retire comfortably. When coming up with a retirement plan, you need to think about the goals you want to achieve before you get to retirement. Remember that everything is tied together and what you do today as well as how you spend and save will determine the type of retirement you will have.

Retirement Planning: an Overview

When planning for retirement, start by thinking about your goals and how much time you have left to achieve them. Then, you need to think about how you can raise enough money to have enough to retire with. You might also have to think about investing your savings, so they grow as you near retirement, as this increases the amount you retire with. We will look at all these and more, as well as look at some tips to ensure you have a solid retirement plan.

Know How Much Time You Have Left

Your age as well as the age you wish to retire at will be the foundation you build your retirement plan upon. If you are in your 20s or early 30s, you have a lot of time to plan for your retirement as well as save for it. This means you might not have to save a lot of money monthly or annually for your retirement, as you have longer to save for retirement.

Additionally, if you have 30 years between now and your retirement, you have some leeway to put your money in some riskier investments such as stocks. While these riskier investments will be affected by market forces and volatility, studies have shown that stocks outperform most other types of securities in the long term (more than 10 years).

For young investors, you also need to think about investing in options that grow at a higher rate than inflation. If the rate of inflation is higher than the percentage returns your investments bring, you are at risk of having your savings eroded by inflation due to the power of compounded inflation.

As you get older, your portfolio should switch to investments that bring income and help you preserve capital. Securities such as bonds are a great option here because they are less volatile and will give you an income on which to live. You also do not have to think about inflation because there is less time for inflation to significantly affect your savings and investments.

Determine Your Retirement Spending Needs

Your retirement portfolio will also be largely affected by your spending habits post-retirement. Although many people can survive on 70-80% of what they used to spend before retirement, the exact number is hard to pin down for different people. This is especially true where financial obligations such as loans and mortgages are yet to be taken care of. It is also the case if the retiree has unforeseen medical expenses.

Also, do not forget that you might spend the first few years of retirement travelling or doing things you didn’t get around to doing when you were younger.

Understanding all this, it is easy to see why financial experts say that your post-retirement spending should be closer to 100% of what you used to spend before retirement. Also, remember that the cost of living is rising every year and as you get older, you might have to take care of some medical expenses if you do not have adequate health insurance.

If you want to purchase a home or pay for your kids’ education after retirement, you need to make the necessary adjustments now. Once you understand your post-retirement expenses and withdrawal rate (the amount you will be taking out of your accounts every year), you can start factoring these into your retirement plan.

Once you know when you need to retire and know how much your post-retirement spending needs are going to cost, you can begin calculating the amount of money you need to save for investment. A good way of doing this is by using a retirement savings calculator.

A retirement savings calculator such as the one from Wealthsimple takes your current age, retirement age, current salary, how much you plan to save per month, and your post-retirement expenses and tells you how much you need to save for retirement, as well as how much you will retire with at your current pace. Wealthsimple can also help you chart an investment strategy, and with their powerful suite of products, they can help you manage and grow your money.

Assessing Investment Options

As you plan your retirement, you should also think about the balance between risk and returns. How much risk you are willing to take will often determine how much your returns are going to be, as well as the investment options you choose. For example, do you want high risk, high return investments such as stocks or do you want safer investments that have lower returns such as treasury bonds?

Ideally, your investment portfolio will be a mix of investment options with various levels of risk. You have to make sure you are ok with the risks that are in your portfolio. You also need to understand the difference between necessary risks and those that are not worth it.

Being comfortable with the risks in your portfolio often means giving enough time for your portfolio to stabilize. A lot of investors pull out once an investment option is not doing well. Because you are investing for your retirement, it is important to not bail on investment options that are underperforming just because there is some noise in the market. They may be underperforming now but over the long term, they will still give you the returns you are hoping for.

Think About Saving in a Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan (RRSP) is an account that you register with the federal government, which is used to save for retirement. Investing in an RRSP is often pushed aside for other saving options, mainly because it adds another obligation for the person saving in the account. Additionally, a lot of people think about it too late due to the obligations they might already have as they get jobs, raise a family, and pay for their house.

However, RRSPs are a great savings option because they come with several benefits. The contributions made to RRSP are tax-deductible. Also, you do not have to pay tax for all the savings you put in your RRSP. As long as you keep your money in the RRSP, the tax savings will be compounded, which means your savings will grow a lot faster than if you opted for most other investment options.

RRSPs can also be used to provide an income once you retire. This is done by converting the RRSP into a Registered Retirement Income Fund (RRIF) or annuity. Remember that you will pay tax on the amount you receive per year but if you are in a lower tax bracket, you will pay very little.

Plan on Where You Will Retire

While making sure you have enough money saved for a comfortable retirement is important, you also need to think about where you will live once you retire. Where you retire will affect things such as your living expenses, as well as additional investments you might be interested in. If you retire in a town or city that is expensive to live in, you should factor in the cost of living and adjust your savings accordingly.

If you are looking to invest in real estate or rental units once you retire so you have a predictable income, you should ideally retire to a place that makes that possible. This makes it easy to keep an eye on your investment and gives you a better idea of the prevailing housing market in case you need to pull out of that investment.

Estate Planning

Estate planning is another critical aspect of your retirement plan. Although no one wants to think about it, planning how your assets will be distributed once you are no longer here is important. Each of the different aspects of estate planning will require different professionals, but there are a few things you can start doing by yourself right now.

A good place to start is getting life insurance. Life insurance pays out a predetermined amount to your beneficiaries once you pass away. It ensures your loved ones have some money to take care of their financial obligations and that they do not have any financial hardships. Having a proper estate plan and life insurance option in place will also help your beneficiaries avoid the expensive and lengthy probate process.

Planning for retirement is important for everyone who wants a comfortable and fun retirement. The key is starting early, knowing how much you need to save, and assessing different investment options to see which one works best for you in the long term. Talk to your financial advisor so they can give you advice on areas you may be stuck on or unsure about.

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