Retirement Planning Options to Reach Your Goals
If possible, you should start your retirement planning about five years before your proposed retirement date. Most of us focus on how much we need to save. That’s fine in the early years, but as you get closer you need to give more thought to how much you’re going to spend.
What if you’ve analyzed your retirement needs and discover you haven’t saved nearly enough to be able to fund your desired lifestyle? What if you haven’t been a regular saver, have had periods of unemployment, or have gone through an expensive divorce?
Here are some options to consider to help you reach your retirement goals.
1. Work Longer
Once you’ve got retirement in your mind it can be hard to resign yourself to working longer than you thought you would. But, if you’re healthy and willing to postpone your quit date, those few extra years can really boost your retirement projections.
The longer you work, of course, the more you can save. If you have a workplace pension, you’ll be adding to your pensionable service thereby increasing your pension payment. The same applies to CPP benefits. On top of that you won’t be withdrawing from your nest egg, making it last longer.
2. Save More – Spend Less
Hopefully, your big expenses of mortgage and raising kids should be behind you and you’re most likely to be in your peak earning years. Don’t be tempted to increase your life-style now.
Take the money spent on mortgage payments and providing for your children and whisk it away into your savings. Make the most of new money. Put bonuses, tax refunds or other lump sum payments directly into savings.
You probably have loads of unused RRSP contribution room. That can generate huge tax returns which could be invested in your TFSA.
Be mindful of taxes and pay attention to where you save. Decide which spouse should invest the money. Think of how future RRSP withdrawals will impact your taxes or the OAS clawback.
3. Reduce Your Retirement Lifestyle
Would reducing your annual spending goal still provide a great lifestyle in retirement?
There are a lot of options here. You don’t have to completely give up your fun activities. See if you can modify the basics – downsize your home, replace your vehicle less often or make do with just one. Make sure you retire debt free.
A lifestyle adjustment may mean travelling less often and not buying every available gadget for your new hobbies. What could you discard without too much regret if you had to?
4. Earn More From Your Investments
This is tricky. It usually means taking on more risk, but start by reducing the overall costs in your investment portfolio. If you are paying high MERs in mutual funds (typically 2%+), consider switching to index funds. You could go the do-it-yourself route and reduce your costs to about .05%. That extra money will be staying in your retirement account instead of going straight into the hands of your advisor.
Increasing your equity portion may help you achieve an extra 2 or 3%, but how do you feel about this extra risk. It’s easy to say you have a high-risk tolerance when the market is going strong, but what about when it’s starting to roller-coaster like it has been doing recently.
That being said, if you’re not fully invested and are holding a lot of cash (perhaps you’ve been waiting patiently for market prices to drop), or you’re holding a lot of low interest fixed income products you might want to add more equities, but this is not the time to speculate.
5. Supplement Your Retirement Income
You might decide to take on some part-time work after retirement, perhaps derived from a hobby or a passion or just to get out of the house and socialize. Earning a few thousand a year working at a golf course or winery, selling your art, or working a couple of days a week at a craft store or Canadian Tire can extend the life of your portfolio.
Consider your options and keep your skills fresh. You may be able to work part-time for your current employer. Perhaps you are in a field that would allow you to do consulting work or teaching one or two days a week.
The Bottom Line
The earlier you start your retirement planning the more time you have to make adjustments, so you can reach your desired outcome.
Even if you’re a late starter you can start saving more and earn more from your investments – or work longer. Moderate your lifestyle expectations somewhat if necessary, and you’ll still have an enjoyable retirement.