Is Retirement Drawing Near? Here’s How to Maximize Your Savings!
Your retirement is slowly approaching, but do you know if your retirement savings will be enough to satisfy your needs? It’s never too late to improve your financial future. Here are a few options to help you save more effectively for your retirement.
Once you reach age 50, the prospect of retirement becomes difficult to avoid. For your dreams to become a reality, you must prepare for them.
To maintain your quality of life when you retire, you should assume that you will need to earn about 70% of the revenue that you earned during the last three years of your full-time professional life. However, this rule of thumb is just a starting point: a retirement budget established with a financial planner will allow you to specify your real needs for retirement. Regardless of your financial situation, government programs will only cover a part of your needs. Your savings, if well-invested, should make up the difference and generate the majority of your retirement revenue.
Your retirement may also be long, since the life expectancy of Canadians is one of the highest in the world: more than 80 years at birth, and more than 85 years for individuals who reach age 65.
That said, generally, Canadians rely too much on public pensions and save too little for the retirement they hoped for. If you don’t want to have to work after age 65, you can still catch up by maximizing your retirement savings in the coming years.
Allow Yourself to Put More Money Aside for Retirement
The first step to improving your saving capabilities is to increase the difference between your earnings and expenses as much as possible. Start by limiting or eliminating interest on your debts by paying them back. Consider putting off your next car purchase. Think about expenses that you can skip or reduce: restaurants, discretionary expenses, outings, etc.
Resist the Temptation to Increase Your Unnecessary Spending
Your children have grown up and should be financially independent. Your mortgage will soon be paid off. You’re expecting some of your expenses to decrease and you’re already dreaming about traveling and buying yourself some luxuries. If your health is good, you will have plenty of time to spoil yourself later. You’re better off making sure you have a nice financial cushion for your retirement.
Is Your House Too Big?
If your children are leaving the nest, it might be time for you to move to a smaller home. You can take advantage of the growth of the housing market over the past few years to make a profit and free up some money to put toward your retirement. You could even take this opportunity to move closer to public transit and reduce your car-related expenses.
Make the Most of Registered Plans
Governments encourage you to save for your retirement by contributing to registered plans that keep your savings tax-free for a certain period.
You can invest up to 18% of your earned income in an RRSP. You can also put up to $5,500 per year in a TFSA. Consider taking advantage of an optional complementary pension plan or a collective RRSP through your employer. In all cases, you’re better off making the most of these options.
If, like most people, you haven’t used all of your contribution room in the past, you can make up for it. The Canada Revenue Agency lets you know the amount that you can contribute to your RRSP. When it comes to pooled registered pension plans (RPPPs), consult your employer to find out the maximum contribution you can make.
Don’t wait until the end of the year to plan your contribution. Consider setting up regular automatic deposits and, as soon as you receive a tax refund, use it right away to make your contribution for the next year.
If you’d rather contribute to a TFSA, keep in mind that, since its inception until today (2017), the total contribution room for one individual is $52,000. Take advantage of this opportunity if possible.
Your unused TFSA contribution room can be particularly useful if a sum of money – such as an inheritance or the profit from selling your house, for example – suddenly becomes available. You can invest all or part of the amount in a TFSA and grow your retirement savings that way, without increasing the tax payable at retirement or reducing your old age security pension.
Don’t Let Your Money Sit Idle
Many Canadians have savings in the form of liquid assets, often in simple bank accounts. These savings are always decreasing in value due to inflation. Even though a certain amount of caution is required for investments as you get older, you won’t get a return if you don’t invest.
If your retirement is still a long way off, most of your savings should be invested. A wise balance of guaranteed investment certificates (GICs), bonds, and company shares will considerably increase your retirement earnings without running high risks.
Consider Working Longer
While the majority of Quebec residents start to receive a retirement pension under the QPP before age 65, it’s in your best interest to work up until this age, and possibly even beyond it – even if only part-time. The more your work earnings cover your daily needs, the more your savings will continue to grow for your retirement. You can even contribute to an RRSP until age 71. In addition to the financial benefits, many studies show that maintaining employment in your golden years is an excellent way to support both health and longevity.
Your retirement is too important not to prepare for it. Retraite Québec provides a great deal of information and tools to help you plan your retirement. The National Bank’s Retirement Guide and newsletter also offer useful advice to optimize your retirement savings. For a comprehensive overview, don’t hesitate to meet with your advisor or a financial planner at the National Bank to create your personalized MyIdea retirement plan.
Beat the March 1 deadline and contribute to your RRSP now!
Edited on 23 March 2017