Planning for retirement can be a complicated process. Knowing how to ask the right questions can help you to plan and develop clear goals. These 4 important questions are a great place to start in your planning process:
1. What do you want your retirement to look like?
It can be hard to visualize your retirement when it is still many years away. Think critically about your expectations and what your ideal scenario looks like. Many of us get caught up in saving away and building a nest egg, without truly knowing what it is we want to be doing. A little self-understanding today can lead to better planning and fewer surprises in the future. What is your retirement personality?
2. How much do you need to save?
Generally speaking, couples aspiring to an average middle–class retirement will need around $58,000 of pre-tax annual income (including government benefits). This means they will need to save up to $650,000 by the age of 65. Those looking for a more upper–middle–class lifestyle will need about $74,000 of annual income, meaning they need to save about one million dollars before retiring. Everyone’s ‘magic number’ will be different, take into account any major financial burdens such as acquiring a home, supporting children or family members, paying off debts, etc. Knowing a ball-park figure will help you set both long and short-term goals.
3. When should you start taking advantage of benefits?
Decide when to start taking Canada Pension Plan (CPP) benefits and tapping into the Old Age Security (OAS) benefit. You can start getting CPP as early as the age of 60. It is worth taking the time to research and figure out what age is right for you. There are a number of tax and income factors that could guide you to choose the standard age of 65, or start earlier or later. For OAS, you can begin receiving benefits at the age of 65, or wait until the age of 70. Learn about benefit details and gain insight into when to start your benefits.
4. How will you be putting money away?
Putting money away for retirement might not become a priority until later in life, but the earlier you start the better. Ideally, you will make contributions to your RRSP when you are in a higher tax bracket, and withdrawals when you are in a lower one. Contributing to an RRSP provides tax credits on annual income tax returns. RRSPs are a good choice for most people but might not be the best option for those that expect to stay in a low tax bracket for the duration of their career. Find out if contributing to an RRSP is right for you. An alternative to RRSPs is the Tax-Free Savings Account (TFSA). TFSAs are a great way to pay less tax on your savings. Ensure you are able to take full advantage with these tips.
No matter what your retirement goals are, get informed and make the most of your retirement opportunities.