RSSMarch 2010 Newsletter
When will you be able to retire?
Here’s what you need to be doing now for your retirement.
Sure you love your job, but do you want to be doing it when you’re 90?
You keep hearing it, and it’s true: it’s never too early to start putting money away for your retirement. But how much? Whether you’re years from turning in your employee pass card or already making your retirement travel plans, this guide will help you estimate your retirement income and make a savings plan.
Three steps in retirement strategy
1. Estimate your total retirement income. The first step is to determine how much after-tax income you will get when you retire. Include income from all government programs such as Canada Pension Plan (CPP) and Quebec Pension Plan (QPP), employer-sponsored pension plans, other retirement income programs and other sources such as investment and rental income and part-time employment.
2. Estimate your retirement needs. The second step is to decide how much after-tax income you’ll need. This largely depends on your chosen lifestyle and your age at retirement. If you aren’t sure what your needs will be, it’s best to pick a target based on a percentage of your pre-retirement income. Although most financial planners suggest a target of 70 per cent, it’s probably wise to shoot a bit higher if you can. People are living longer and it’s surprising how fast money can go when you have time to spend it.
Generally retirees find certain expenses are significantly reduced, while others are higher.
Once you’ve had a chance to consider the effect that retirement will have on your living expenses, compare your estimated income and deductions just before retirement with those just after retirement. For example, if your goal is to generate 80 per cent of your pre-retirement net income and your estimates reveal that you’ll need more than that to fund the lifestyle you want, the difference between the two figures will have to come from personal savings.
3. Establish a retirement savings program as soon as possible. The final step is to establish a program to help you reach your savings goal. Most important is to decide what percentage of current income you can set aside to meet your savings objective and how long it will realistically take to achieve it. Next you must decide how your savings will be invested. Finally, retrace these steps every few years to ensure that your retirement plan is still on target.
Analyzing your retirement income needs
Next you need to estimate your own retirement income and expenses as well as any savings that might be required to meet your objectives. While it’s fairly straightforward to pinpoint what your RRSPs, investments and savings are worth today, the calculations to project their value when you do retire – which could be some time down the road – are rather tricky. Similarly, while it shouldn’t be too hard to estimate your retirement expenses in today’s dollars, the math to project those costs in retirement is again rather advanced. We suggest that instead of wading through complex formulas, talk to a Financial Advisor. They will have special calculators or programs that will crunch the numbers for you once you supply the required information. When you have the numbers you need, contact a Financial Advisor. Most of the time they can provide you free advice of what you would need to do to reach your goal.
Meeting the shortfall
If you are like most Canadians, this exercise will probably identify a shortfall of how much you’ll have available to fund your retirement. Remember, too, that this is only a snapshot. The amount of income you can depend on from government sources may be much lower by the time you retire, so it pays to go through this exercise at least every few years.
If you have identified a shortfall and you aren’t planning on winning the lottery, you’ll have to develop one of the following strategies to solve your problem.
1. Make maximum use of your RRSP, pension plan or Tax Free Savings Account. If you aren’t already making the maximum allowable contribution to these accounts, do so. These are the most effective places to direct your savings. But talk to a Financial Advisor first to determine if its advisable to maximize one over the other for your situation.
2. Resolve to start saving more. Increasing the amount of money you save will probably entail a thorough review, and possibly a reduction, of monthly expenditures, but it’s not the end of the world. A more austere budget will force you to choose between nonessential current expenditures and a better standard of living at retirement.
3. Consider increasing your equity exposure. If you have the time to ride out fluctuations in the market, a hard analysis of your current situation might cause you to consider moving more of your investment portfolio into more aggressive assets such as equities. They entail a higher degree of risk than fixed-income and other types of investments, but the rewards, if you have enough time to wait for them, can significantly boost your retirement income.
Janea Bellay, Your Insurance & Investment Advisor
Janea Bellay is an independent insurance and investment advisor, specialized in a unique 360 degree financial planning approach for individuals and families:
Liquidity accounts – Your spending, savings and retirement accounts
Family Security – Maintaining life insurance for all life’s unexpected financial needs
Family Protection – Maintain your current lifestyle even if there are unexpected illnesses such as cancer, heart attack or a stroke
Retirement Planning – Are you putting enough away and into the right investments to retire successfully?
Contact our office today to have your questions answered!!
Janea Bellay Performance Financial Services Inc 217-3501 8th Street East Saskatoon, SK S7H 0W5 Tel: 306-281-3891 janea@performancefinancial.ca
To remove your name from our mailing list, please click here.
Questions or comments? E-mail us at janea@janeabellay.com or call 306-281-3891.
LEGAL DISCLAIMER
Janea Bellay is an independent self-employed insurance and investment representative, licensed to sell insurance and investment products and services through Performance Financial Services Inc. This is an independent MGA brokerage, and part of the United MGA Group of Canada. Mutual funds are offered though Desjardins Financial Security Investments Inc. Commissions, trailing commissions, management fees and expenses may be associated with mutual fund investment. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information in this article is not intended nor should it be considered as providing specific legal or tax advice. Individuals should consult with their individual advisors to ensure that any information is applicable and appropriate to their specific situation.
