Posted on Saturday October 24, 2020

Living your dream retirement? It's possible with a good financial plan.

If your retirement is fast approaching and you’re feeling shaken by situations like the COVID-19 crisis, you’re not alone! It’s a good time to review the performance of your retirement savings strategy and adjust it according to your new needs and situation.

By making a budget that takes your lifestyle into account and assessing the capital you’ve already accumulated and your future income, you’ll be able to get a clear picture of your situation and take steps to make your retirement dreams come true.

Assessing your situation in detail

Are you retiring in three years or in ten? Are you considering a phased retirement? Do you have a pension fund or an RRSP, or are you considering investing in a Life Income Fund? There are as many situations as there are future retirees, but the overall strategy is always the same: know your wants, needs and means so you can build a plan based on sound values and realistic goals. The starting point is you.

How to calculate the income you need

Various tools are available to help you determine your retirement income needs, including our handy personal budget calculator and the many resources on our Wealth Management page. You can also check whether you're on track to meet your financial goals for retirement with our retirement assessment tool.

It’s often said that we should aim for a retirement income equivalent to 70% of what we earn at work, but that’s a ballpark figure at best. That’s why it’s important to do precise calculations based on your own specific situation and needs. And the easiest way to do so is to make a budget.

Create a realistic budget

Calculate your fixed expenses (mortgage, loans, vehicle, Internet, telephone, etc.) and your discretionary expenses (restaurants, books, shopping, travel, etc.). Now compare your budget to the lifestyle you want to have in retirement. Are your projected expenses higher or lower? Are they similar? For example, if you plan to sell your house and move to a smaller home, you may be able to save your capital gains or use them for other expenses. The purpose of this exercise is to predict the income you'll need in retirement as accurately as possible.

Financing your retirement: Where to find the money you need

In retirement, your employment income drops dramatically, if it doesn't disappear completely. It’s normal—you're no longer working! You can now spend your days doing what you want, but you'll have to rely on other sources of income to maintain a satisfying standard of living.

The sources of income available to you

Once you’re retired, you can dip into your personal savings or receive benefits under government programs. Your financial planner or wealth management advisor is the best person to explain your options.

The private pension plan: A secure income

If you’re an employee, you may be enrolled in a defined contribution or defined benefit pension plan. To find out the actual income you'll be entitled to at retirement, contact your employer's human resources department. Some employers have a pension calculator they make available to their employees. This is a very useful tool for assessing your retirement income.

Old Age Security pension

The Old Age Security pension is a federal program that allows all Canadians to receive retirement benefits starting at age 65, whether they’ve worked or not. The amount you receive isn’t related to your annual income (unless it exceeds $126,000) but is based on the number of years you’ve lived in Canada after the age of 18. The current maximum amount is $614 per month (in 2020).

Guaranteed Income Supplement

If your retirement income is low, you may also qualify for the Guaranteed Income Supplement. With benefits from this federal program, a single person with an income of less than $18,600 may receive up to $916 per month.

New Brunswick Low-Income Seniors' Benefit for 2020

If you’re a recipient of one of the federal programs listed above, you may also be eligible for a provincial benefit of up to $400 per month. Note that for a couple living together, only one benefit per household is allowed. 

Income property

Although managing an income property requires time and investment, it's a potentially attractive avenue for continuing to earn income after retirement. With good advice from your financial planner or wealth management advisor, you could integrate this investment strategy into your retirement portfolio.

Compare your projected income to your estimated needs

Does inflation give you nightmares? Don't worry. The best way to avoid unpleasant surprises is to start planning now for the impact that the rising cost of living could have on your expenses after retirement.

A simple but important calculation

The closer you get to retirement, the less impact inflation will have. Whereas an annual expenditure of $25,000 in 2005 represents $31,860 in 2020, an annual expenditure of $25,000 in 2015 only represents $26,904 five years later. You can use an inflation calculator to estimate future rates, or simply consult your financial planner or wealth management advisor. They're the best equipped to advise you.

Taking inflation into account will allow you to adjust your income and expenses according to your retirement outlook. A retirement that spans 15, 20, 25 or even 30 years is no longer rare these days. In this context, accounting for inflation is crucial for establishing a good plan.

The “Three S’s” Rule: Save, save, save

Now that you’ve calculated your anticipated annual income and expenses, you can analyze your future retirement situation. Will your income be sufficient to cover your expenses? If not, you can revise your budget to reduce your expenses, but the solution will always be to save more. A wealth management advisor is the right person to guide you to the investments best suited to your situation.

Taking action: Converting your RRSPs into an RRIF

You can also convert your retirement investments into income and start your retirement more comfortably. Talk to your advisor about a Registered Retirement Income Fund (RRIFs) and a Life Income Fund (LIFs). A stable and predictable income is the best foundation for a peaceful retirement.

Taking the time to plan your retirement also means you'll have the pleasure of imagining all the possible scenarios and experiences that await you. And what could be more satisfying than seeing your wildest dreams come true?  

Mutual funds and securities-related financial planning services are offered through Credential Asset Management Inc. Mutual funds, other securities and securities-related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered trademark of Aviso Wealth Inc. The information contained in this article has been obtained from sources believed to be reliable; however, we cannot guarantee its accuracy or comprehensiveness. This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell mutual funds.