5 steps to plan for retirement

Have you started thinking about how to plan for retirement? This kind of preparation isn’t just for people who are getting ready to retire within the next year. In fact, it’s great to start looking ahead to your retirement at any point in your life — the sooner the better! There’s always things you can do to ensure that when the time comes, you are fully prepared. Here are five things you can do to plan for retirement, some of which are best suited for people who are retiring in the near future, others that are geared toward younger Canadians retiring down the road!

#1 Get a handle on debt

In order to retire, you must be in a strong financial position to do so. To plan for retirement, you should ensure you have a handle on any and all debts you might have. This includes mortgages, car loans, lines of credit, and credit cards. Knowing your income is about to decrease, you need to be sure you can handle any existing debts and preferably clear them out before you retire. You can begin this process by making a list of any debts you have, their interest rates, and the amounts you owe. You should prioritize your debt by highest interest rate to avoid paying more interest over time. This will help you clear out your debts one by one, save you money in the long run, and make sure you’re ready to retire with confidence.

#2 Consider your retirement plans

In order to plan for retirement, you should have an idea of what your future looks like and how you will be using your time and money. Maybe you want to sell your current home and downsize, or start renting instead of owning. You might want to travel, donate money, provide financial assistance for family, or do a whole host of other things. Whatever your plans, it’s important to think about them before you retire. You should think about how much you plan to spend, and perhaps create a budget or separate savings account. If you plan to use a lot of money on a big retirement vacation, for example, you should have saved enough to enjoy it to the fullest.

#3 Consider investment opportunities 

Retirement is a good chance to learn about investment opportunities. There are many options for investing, from real estate to stocks, bonds, and mutual funds. If you’re not familiar with these terms, you can learn a bit about them here. In basic terms, stocks are small shares of ownership in a company. Bonds, meanwhile, involve loaning money and receiving regular interest payments until you get that money back over time. Mutual funds involve both stocks and bonds, with the help of a professional fund manager. Investing can be a good way to help secure your finances even further into retirement, but it’s important to be smart and careful about investing as well. Be sure to do some research and ask for help if you need it.

#4 Think about your RRSP

Your finances will be a huge part of retirement, and you must have a plan in place for them. Before you retire, you should have a savings plan set up, where you have a schedule of contributing money. Obviously, you will be losing your income when you retire. Even if you have a pension plan, you will still have less money than you did when you were working. In order to live comfortably, you need to plan ahead. This is where your registered retirement savings plan, or RRSP, comes in handy. These accounts are specifically meant to help people plan for retirement. You can contribute up to 18 per cent of your annual income (up to a maximum) to this account each year, which won’t be taxed until you withdraw it in your retirement. At that point, your income will be much lower, so you will be taxed less when you decide to withdraw. This helps retirees access money they may need in five, 10, or 20 years.

#5 Make use of your TFSA

Finally, you should make use of your tax-free savings account, or TFSA. Though not specifically designed for retirees, this account can be very handy. Like an RRSP, you can contribute money to set aside for the future. However, this money is taxed before it goes into your account, unlike an RRSP. This money is considered part of your annual income and is therefore not tax exempt. The good news is this means the money is not taxed when you eventually withdraw it. The benefit here is if you find yourself in need of a large sum of money later in life, you can withdraw it from your TFSA with no tax or interest.

Retirement is an exciting milestone for Canadians, and it’s definitely something to celebrate! It’s also best to ensure that as you plan for retirement, you are financially secure and in a stable position. This will help you live your retired life to the fullest, giving you the freedom to do anything your heart desires!

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