Conventional wisdom suggests saving about 10 to 12 times your current income for retirement, but many people approach their golden years with much less tucked away. According to a Canada Project Poll with Macleans, 62 percent of Canadians say they’re very or somewhat confident they can retire at age 67. So, how much is enough to ensure you retire well and live comfortably?
Determining Your Retirement Savings Goal
The amount of money you need to have saved before retirement depends on several personal factors and considerations:
Your Lifestyle: If you live within your means and have prudently saved for retirement, you might not need to drastically adjust your lifestyle. It’s better to have the choice to downsize your lifestyle and spending habits than to be forced to do so due to inadequate planning.
Your Retirement Plans: Although it’s wise for both you and your spouse/partner to save for retirement, other considerations may impact your total savings target:
- At what age do you plan to retire?
- If you have a spouse/partner, will you retire at the same time?
- Will you receive a pension from your employer?
- Do you plan to continue working part-time?
Your Health: If you’re healthy and have longevity on your side (e.g., your parents lived past the average life expectancy of 81 years for women and 76 years for men), consider saving more money.
Other Income Sources: If you will receive a pension from your employer, money from the Canada Pension Plan (CPP), Old Age Security (OAS), or dividends from investments, include them in your overall retirement plan.
Financial Obligations and Expenses: These may include a mortgage, car payments, credit card debt, healthcare expenses, and financial support for children or grandchildren.
Keep in mind that nothing is set in stone and your circumstances may change at any time. Changes in your health or that of a family member, or changes in your family status, may affect your financial situation.
For any circumstance changes that may impact your retirement plans, be sure to connect with a financial advisor who can help you update your plan and stay on track to reach your retirement goals.
Retirement Catch-Up: Getting Your Savings Back on Track
If you’re behind on your retirement savings, don’t panic. There are ways to catch up and ensure you have a comfortable retirement.
Pay Yourself First: The key to building wealth is keeping a portion of what you earn. Set up an automatic transfer of a portion of your paycheck into a savings account. From there, you can choose to contribute a portion of your savings into a retirement account, such as a Tax-Free Savings Account (TFSA) and/or a Registered Retirement Savings Plan (RRSP).
- TFSA Contributions: You can contribute up to $6,000 per year (as of 2023). The total contribution amount rolls over each year, so you may be able to contribute more. If you’re just opening the account, you can contribute up to $81,500. There’s a 1 percent per month over-contribution penalty; if you over-contributed more than $1,000, the penalty is $10 a month until you remove the excess amount.
- RRSP Contributions: Contributions are capped at 18 percent of your earned income from the previous year’s tax return, up to $29,210. However, if you also contribute to a company-sponsored pension plan, the maximum amount you can contribute to your RRSP will be less, as it takes your pension contribution into account. The Canada Revenue Agency (CRA) will send a notice of assessment with the amount of your contribution limit for the following year.
Reduce Monthly Expenses: If you haven’t created a budget, now is a great time to start. List all of your income and expenses for the month and see where your money is going. Once you have an overview of your finances, look for ways to reduce spending, starting with non-essential spending. Then, create a budget and be sure to follow it. Track your expenses to hold yourself accountable to your budget.
Another way to reduce your overall monthly expenses before you retire is to pay off any existing debts, such as your mortgage and car loans. Retiring debt-free will liberate your income for savings or living expenses.
Downsizing Before Retiring: Many retirees choose to downsize after they’ve retired to reduce their living expenses. However, doing so before retirement may increase your cash flow in the short term, while allowing you to become accustomed to your new space. If moving isn’t possible before retirement, look for ways to reduce your monthly housing costs.
3 Ways to Have More Income in Retirement
- Use the Canadian Retirement Income Calculator: Visit the Canada.ca website to see how much you may earn in retirement based on your age, planned retirement date, and contribution amount. This tool can help you plan and adjust your savings goals accordingly.
- Become a Landlord: Consider purchasing a rental property or leasing extra space in your home through publicly hosted sites such as Airbnb. These sites provide the necessary infrastructure for you to market your location, collect payment, and have renters only when it’s convenient for you.
- Consult Your Financial Advisor: If you wish to save additional money for retirement, contact your financial professional for other retirement options. They can provide personalized advice based on your financial situation and goals.
Making the Most of Your Retirement
Retirement is not just about having enough money; it’s also about enjoying your newfound freedom and making the most of your time. Here are some tips to help you live your best retirement life:
Stay Active: Physical activity is crucial for maintaining your health and well-being. Find activities you enjoy, such as walking, swimming, or yoga, and make them a regular part of your routine. Consider joining local fitness classes or clubs to stay motivated and meet new people.
Pursue Hobbies and Interests: Retirement is the perfect time to explore new hobbies and interests or to rekindle old ones. Whether it’s painting, gardening, or learning a musical instrument, engaging in activities you love can bring joy and fulfillment to your days.
Volunteer: Giving back to your community can be incredibly rewarding. Look for volunteer opportunities that align with your passions and skills. Not only will you make a difference, but you’ll also stay socially connected and mentally stimulated.
Travel: If you have the means, consider traveling to new destinations. Exploring different cultures and environments can be an enriching experience. Plan trips that fit your budget and interests, whether it’s a weekend getaway or an extended overseas adventure.
Stay Connected: Maintain and build relationships with family and friends. Regular social interactions are essential for your mental and emotional well-being. Join clubs, attend social events, and make an effort to stay in touch with loved ones.
Planning for the Unexpected
Life is full of surprises, and it’s essential to be prepared for the unexpected. Here are some steps to ensure you’re ready for any curveballs that come your way:
Emergency Fund: Maintain an emergency fund with at least three to six months’ worth of living expenses. This fund will provide a financial cushion in case of unexpected events, such as medical emergencies or home repairs.
Insurance: Review your insurance policies to ensure you have adequate coverage. This includes health insurance, home insurance, and life insurance. Having the right insurance can protect you and your family from financial hardship.
Estate Planning: Create or update your will and establish a power of attorney. An estate plan ensures that your assets are distributed according to your wishes and that someone you trust can make decisions on your behalf if you’re unable to do so.
Long-Term Care: Consider the potential need for long-term care as you age. Research options such as long-term care insurance or setting aside savings specifically for this purpose. Planning ahead can provide peace of mind and financial security.
Maintaining Financial Health in Retirement
Even in retirement, it’s important to keep an eye on your finances. Here are some tips to help you manage your money wisely:
Budgeting: Create a budget to track your income and expenses. This will help you live within your means and ensure you have enough money to cover your needs and wants.
Withdraw Strategically: When it comes time to withdraw from your retirement accounts, do so strategically to minimize taxes and maximize your income. Consult with a financial advisor to develop a withdrawal plan that suits your situation.
Monitor Investments: Keep an eye on your investment portfolio and make adjustments as needed. A financial advisor can help you manage your investments to ensure they align with your risk tolerance and financial goals.
Avoid Scams: Retirees are often targets for financial scams. Be cautious of unsolicited phone calls, emails, or offers that seem too good to be true. Protect your personal information and consult with a trusted advisor before making any significant financial decisions.
Enjoying the Retirement You Deserve
Retirement is a time to relax, enjoy life, and pursue your passions. By planning ahead, managing your finances wisely, and staying active and engaged, you can ensure a fulfilling and stress-free retirement. Here are some final tips to help you make the most of your golden years:
Set Goals: Having goals gives you a sense of purpose and direction. Set both short-term and long-term goals for your retirement, whether they’re related to travel, learning, or personal growth.
Stay Curious: Keep your mind sharp by staying curious and open to new experiences. Read books, take classes, or learn a new skill. Lifelong learning can keep you mentally active and engaged.
Celebrate Milestones: Celebrate your achievements and milestones, no matter how small. Whether it’s completing a project, visiting a new place, or simply enjoying a beautiful day, take the time to appreciate and celebrate the moments that make life special.
Give Yourself Grace: Retirement is a significant life transition, and it’s normal to experience ups and downs. Give yourself grace and be patient as you adjust to this new phase of life. Remember that it’s okay to take things one day at a time.
Retiring well is about more than just having enough money—it’s about living a life that’s rich in experiences, relationships, and fulfillment. By planning ahead, staying active, and managing your finances wisely, you can ensure a retirement that’s as enjoyable as it is secure. So, get ready to embark on this exciting new chapter with confidence, knowing that you’ve done everything you can to retire well.
