Posted on Friday June 11, 2021

Taking the time to plan your retirement pays off!

Will a sound retirement plan allow you to live life to the fullest?

Whether you retire at 65, 55 or 30, your retirement must be well planned to ensure that you can maintain your standard of living and be successful in everything you do. Elisabeth Duguay, MBA, a Wealth Management Advisor at Credential Asset Management Inc., explains the importance of careful retirement planning.

No matter at what age you retire, a good plan will help you live life to the fullest! Ms. Duguay takes a look at the questions you need to ask yourself and the sources of income available for retirement.

Key elements for properly planning your retirement

We admit that predicting what your life will be like in 20 years isn’t easy. No one knows the future! Planning, including using the retirement assessment tool available at uni.ca, is the best way to ensure your future, according to Ms. Duguay.

"Today, our retirement is generally as long as our working life, which is why planning is so important. What are our goals? Do we want to travel or move? What about our health? These are all questions we need to ask ourselves in order to determine our priorities and needs," she says.

Each person is unique, and this is reflected in the wide variety of retirement plans and needs. "Retirement isn't something you can figure out in an hour while sitting at the table. We need to take the time to create a personalized plan," Ms. Duguay says, while suggesting starting with a basic template to establish the plan’s outline.

The essentials of a retirement budget

Here are seven things that will help you begin your financial planning for retirement.

1. Specify what your retirement will look like
2. Determine your desired retirement age
3. Determine fixed and incidental expenses - what you will need and want to spend in retirement
4. Determine potential sources of income and expenses
5. Eliminate financial responsibilities, such as mortgage and child-related expenses
6. Determine the cost of any special projects
7. Estimate health-care costs, which are likely to be higher in retirement

After reviewing these questions, your advisor can drill down on various items with you. For example, family history is an indicator to consider. "A chronic illness can have a significant impact on your retirement horizon. Will we need to modify your home or will we need in-home care? These are questions that must be asked," Ms. Duguay explains. She also points out that two people in a couple may not necessarily have the same goals. If they don't, the plan must take into account the objectives of each.

Elisabeth Duguay, MBA, a Wealth Management Advisor at Credential Asset Management Inc.

Sources of income to integrate into your retirement budget

Do you have to be a millionaire to retire from the workforce? Do you need a pension from your employer? How do you make sure that you have enough money?

Ms. Duguay says the rule of thumb commonly used to estimate income requirements is 70%: "In general, we say that retirement income should be about 70% of our earnings during our working years. Of course, this rule doesn't apply to everyone. For example, if a person wants to do a lot of travelling or purchase large acquisitions during retirement, they'll need more money."

Employer and government pensions

Where will this money come from? To reach that 70%, most people combine their personal savings with government and employer pensions. In Canada, the Old Age Security (OAS) pension covers some basic needs with its $618.45 monthly benefit for all citizens. In addition, if you have contributed to the Canada Pension Plan (CPP) during your working life, you will be entitled to this taxable monthly benefit, which varies according to your contributions. Low-income seniors are also eligible for a New Brunswick provincial benefit, which is limited to $400 per month.

"The amount of CPP benefits varies depending on the individual's situation, but the average wage-earner can expect the government to contribute about 25% of their working lifetime earnings," says Ms. Duguay. That's a good start, but when you're looking at 70%, where do you get the other 45%?

Many people receive pensions from their employers. According to Ms. Duguay, these pensions are reliable, and no one should worry about receiving the amounts to which they’re entitled. "All plans are managed separately from the finances of the company in Canada. By law, benefits are managed in trusts today, both in the private and public sectors."

Personal savings, RRSPs and TFSAs

Regardless of the amount of your pensions, it's okay to set aside money for special projects or simply to give your children a better inheritance.

The main investment vehicles Ms. Duguay recommends are Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs). "Take RRSPs first, because they reduce your taxable income in the year you contribute and allow you to pay less tax. Then contribute to your TFSA, which doesn't offer tax advantages in the year you contribute, but withdrawals are tax-free."

Owning a rental property can also be a good way to increase your income in retirement. This is an attractive option for do-it-yourselfers, but it requires time and energy.

The right time to retire

Some people dream of retirement at 40, while others are still passionate about their work at 70, and there’s a whole range of possibilities in between. For Ms. Duguay, retirement is a project, and you start when you feel ready.

"Psychologically, the person has to be ready because retirement brings big changes. For example, people who’ve had a stable schedule for many years tend to have their lives structured around work. The best way to avoid becoming idle is to be well prepared," she explains. That's why it's essential to plan for this stage of your life. "Ideally, you should plan for 20 years or more to maximize your chances of achieving financial independence and meeting all your needs," she adds.

Partial retirement is also possible. Whether for pleasure or to meet increased financial obligations, retirement can be a good time to pursue new projects or even turn a passion into a small business.

To help you plan for retirement, UNI has a great calculator. Like our Wealth Management Advisors, it will provide you with some guidance. For personalized advice, contact us today.

Mutual funds and related financial planning services are offered through Credential Asset Management Inc. Financial planning services are available only from advisors who hold financial planning accreditation from applicable regulatory authorities.