There are three aspects to think about if you are planning for retirement:
- When to retire, your retirement age.
- What lifestyle you want to have when you retire.
- How you are going to fund your retirement.
Any retirement has to have a retirement age in place. You have to decide at what age you will be retiring. Most of us would say somewhere around 65, and that’s generally when most of the people retire. There are a few exceptions who will keep working well past their retirement age.
It is important to determine your retirement age because that is the age at which you will stop generating income. If you take early retirement you will have more retirement years to enjoy but the trade-off is that you have reduced your income-generating years. This probably means that you have reduced your retirement income. On the other hand, if you work well beyond your retirement age, you will have saved significantly more but you may have fewer years to enjoy. You have to find the balance between the number of years saving for retirement and the number of years in retirement. The best and most prudent approach is to start saving for retirement early and manage your finances carefully.
The next aspect of retirement to think about is the lifestyle you want after you retire. You may want to spend your retirement with quite time mostly staying at home which may not require significant savings or you may choose to spend your retirement jetting around the world. In which case, you will require significant savings. Whatever path you choose, you should choose early, this does not mean that you are stuck with that lifestyle but it’s a start and you have something to aim for. I would say aim a little higher than your plan to have a buffer. Let’s not forget that fortunately, our life expectancy has increased over the years, which means more years in retirement.
Final and perhaps the most important aspect is how you are going to fund your retirement. Income will be the main driver funding your retirement when you are working but that changes when you retire. As soon as you retire, you are no longer earning an income but at the same time, your retirement funds have to continue growing. So the question is, how will retirement funds keep growing after you retire. There are several sources for your retirement funds to grow. Savings are one way and this has to be managed carefully. You have to make sure you are getting high-interest rates to grow your savings. Pensions are another way to fund your retirement. A word of advice here would be not to rely solely on the government pension plan, CPP (Canada Pension Plan). Chances are your income from CPP will not be enough to maintain your lifestyle. Employer-sponsored pension plans are important but again do not rely on this to fund your retirement.
A property is a good source of retirement funds. You may want to downsize in your retirement by selling your property and moving in something smaller and using the remaining proceeds to fund your retirement.
The best course of action to fund your retirement is to take control yourself. This will mean making investments that will provide a stream of income when you retire. There are a lot of options available to invest for your retirement. Talk to your bank to discuss your retirement plans if you are not sure where to start.
Keep in mind that while it’s best to start planning early, and it’s never too late to start.