We’re all living longer, healthier and more active lives and spending more years
in retirement than previous generations. To ensure that you have the lifestyle
you want during retirement, you need an effective retirement strategy – and you
have to start planning early.
| • | Plan for an active and engaged
retirement. Retirement means different things to different people. For some,
it’s an opportunity to try something new, like opening a small business or
working in new field. For others, it’s a chance to sleep in and relax after
years of following a demanding schedule. How you spend your time in
retirement is up to you but it’s wise to give it some thought before you get
there. You may be retired for 20 or 30 years and that’s a lot of time to
fill! You’ll make the transition to retirement more successfully if you
cultivate a wide range of interests (both inside and outside of work) during
your working years.
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| • | Calculate your retirement
income needs. As a general guideline, financial planners suggest that you’ll
need 60% to 70% of your current income to maintain your existing standard of
living in retirement.
When estimating your retirement needs, take into account your current
expenses
– but remember that these expenses may change dramatically as your approach
retirement. For example, your mortgage payments may decrease but your health
care costs could increase. Don’t forget to include the effect of inflation
on your income requirements. If your retirement is years away, projecting
your retirement expenses and income may be difficult, but try to put
together as realistic an estimate as you can.
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| • | Decide when you want to retire.
Setting an approximate retirement date is important because it helps you
determine how many years you’ll be retired. The longer you spend in
retirement, the more income you’ll need and the more money you’ll have to
save during your working years.
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| • | Estimate your life expectancy.
Use government statistics, life expectancy tables or online calculators to
help you come up with a ‘best guess.’ There’s no way to be sure how long
you’ll live, but, with life expectancy rising all the time, it’s best to
plan for a longer lifespan.
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| • | Identify your income sources.
Now that you know how much income you’ll need, determine how prepared you
are to meet that goal. Calculate all your sources of retirement income,
including employer pension benefits, government-funded income, RRSP income
and other investments, such as the equity in your home. Take into account
the growth rate you can expect from your savings and assets between now and
retirement – but be conservative in your projections. The Government of
Canada has provided a convenient,
on-line calculator to help you estimate your retirement income.
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| • | Identify the gap and make up
the income shortfall. If you’ve planned well, your retirement income sources
will meet your retirement needs. But, if you think you’re not going to have
enough to retire, you should take steps to bridge the gap. Calculate how
much you’ll need to save between now and retirement to reach your goal, then
create a savings plan that works for you. Make adjustments as your personal
circumstances change over your lifetime.
If you’re concerned about meeting your retirement goals, you can consider
lowering your retirement expectations and plan for a simpler lifestyle. You
can also consider working part-time during retirement or postponing
retirement for a few years.
While you are working, take advantage of payroll deductions and other
automatic savings tools – they make saving for retirement painless and easy.
Remember, it’s never too late to start saving for retirement!
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