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Insights & advice

Preparing for retirement

May 14, 2021 – 15 min read

It might feel like you just started working, but retirement is no longer that hazy concept far off in the future.

It’s really exciting as you get closer to starting one of the most rewarding chapters in your life, but it’s perfectly normal to have some doubts and questions. Now’s the time to re-evaluate your plan to make sure you’re on the right track and make any adjustments you need to help you retire the way you want.

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Retirement has changed

Before we get started, let’s acknowledge that retirement is changing in Canada. 

How you planned while building your retirement, might not be the retirement you’re about to enter. Changes in your goals, lifestyle and markets need to be adjusted for as you enter the final years of investing and saving before retirement. 

There’s been a gradual shift away from the traditional idea of retiring for a few reasons:

  • We’re living longer

  • Traditional family structures have changed

  • Additional costs with helping adult children or elderly parents

Review your plan

All of those factors affect your retirement plan, but we’re also always evolving personally. As retirement becomes more real, what you wanted 10 or 20 years ago might not be what you want now.

There’s nothing wrong with that, but you might need to adjust your plans because of it.

Don’t forget to also factor in the unexpected. Your retirement may not always go according to plan, but being prepared financially can help you still get the most out of it.

The sooner you start having honest discussions with your family and financial advisor about what you want, the easier it will be to help ensure you can make your retirement dreams your reality.

Timing isn’t everything… but it’s important

The truth is, there’s no perfect age to retire because there are so many factors that are unique to your situation.

But whether you’ve had it circled on the calendar for a decade or you’re still not sure, thinking about it is an important step to help building out what your plan will look like.

Whether it’s 55, 60, 65, 70 or somewhere in between, being prepared can help you get the most out of your retirement.

How much money do you need to retire? 

Similar to when you should retire, there’s no hard and fast rule on the dollar figure you need. It depends on factors like what you want to do, where you want to live and the lifestyle you want. It can help to think of what percentage of your income you want to replace when you retire.  

  • Many experts recommend the "70% rule” when planning for retirement. This means that your retirement savings should replace 70% of your income per year. For example, if you earn $100,000 per year at retirement, you should budget for a retirement income of $70,000 per year, or roughly $5,833 a month before taxes.

It’s also important to keep in mind the length of your retirement. You may need to plan for 20-30 years of retirement or more since we’re living longer. So, when you’re analyzing how long your savings will last, it’s a good idea to overestimate on the length of your retirement to make sure you’ll have enough.   

Let’s look at your retirement income options

There are 3 main sources Canadians can use to draw a retirement income: government benefitsOpens in a new windowemployer pensions and personal investments and savings. Let’s take a look at each.  

Government income  

There are a few different government income options you may be eligible for depending on your financial circumstances, like Canada Pension Plan, Old Age Security and Guaranteed Income Supplement. 

Work-related pensions 

When you retire you may have a pension available to you.  

  • Defined Contribution Pension Plan 

  • Defined Benefit Pension Plan 

  • Locked-in retirement account 

Personal investments 

Many of those investments you’ve been adding to for years can now be utilized in retirement, like RRSPs, Annuities and TFSAs.

Get the most out of your retirement savings

Having retirement income options is great, but how do you get the most out of them?  

It’s not as simple as just taking the money out of your investment and savings to spend. When you begin transitioning from saving to income there are important strategies to be aware of that can help you maximize your money and reduce the taxes you have to pay. 

An advisor can help you get the most out of your savings. 

  • When to withdraw from an RRSP 

  • Tax-efficient withdrawal strategies

Having retirement income options is great, but how do you get the most out of them?

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You can continue to grow your money in retirement 

Just because you’re retired, doesn’t mean you can’t lay the groundwork to continue investing and building your portfolio. It’s important to examine your retirement income and make sure you have enough set aside for investing and saving. By attempting to grow your money during retirement, you’ll potentially put yourself in a better position to do all those exciting things you’ve been looking forward to for a long time.  

Investing in something like a segregated fund policy that offers you guaranteed protection and the potential for growth could be a good option. You could also look at combining segregated funds with an income annuity to give you a regular source of income in retirement. These options can help protect your investment from market fluctuations.  

Just because you’re retired, doesn’t mean you can’t lay the groundwork to continue investing and building your portfolio.

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Retirement doesn’t mean you have to stop working 

If you think you’ll need additional retirement income, try turning one of your hobbies or passions into a job. Working during retirement might sound odd, but it’s a great time to pursue interests you’ve always wanted to explore. 

There’s a good chance your career was largely focused on a 9-5 job to pay bills and put away money for your future, so now could be the time to turn your attention to a passion project or something you really enjoy.  

Consider your retirement budget

As you transition into retirement your income and expenses will change.

That’s why it’s important to create a new budget for your expenses using your estimated monthly income total in retirement. Some expenses that could go up in retirement are:

  • Utilities

  • Travel

  • Healthcare

  • Entertainment

  • There’s also the flipside of this, where some expenses will get easier to manage during retirement. Areas where you may be able to save:

  • Transportation

  • Income taxes

  • When budgeting, take into account your monthly and yearly budget. How much income do you need to have in a year to have the retirement you want? What are your monthly expenses? Can you cover them each month?

Planning with your spouse 

The old saying ‘Two heads are better than one’ can apply to retirement, too. It’s important to discuss both of your visions for retirement so you’re on the page and can plan together, which will help each of you get the most out of your retirement.  

  • What are your retirement goals? 

  • Should you retire at the same time? 

  • What type of investments are good for couples? 

  • Have you looked into estate planning? 

Spend some time focusing on health and wellness 

Finances are a very important part of retirement, but so is your health. Retirement is a great time to put more of a focus on your health and wellness. You might find that not getting up and going to work every day or potentially moving to a warmer climate may take less of a toll on your body. Obviously, you’ll have to consider the financial aspect of making a move like that, but if it’s going to be beneficial to your health it’s something to consider. 

You’ll also have more free time to exercise or pick up an athletic hobby. Keeping active is always important and especially during your retirement years.  

Enjoy the experience 

While there may be a lot to take care of and finalize with your advisor as you prepare for retirement, don’t lose sight of how exciting this time in your life should be. Take the time to evaluate what you want your retirement to be like. You’re closing in on a new chapter that gives you an opportunity to put an emphasis on all the things in your life you may not have had time for during your working years. The life of a retiree can, and should, be everything you want it to be. 

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