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Increase your income for retirement

15 February 2017 by National Bank
retirement savings

Although not happening anytime soon, you may already be thinking of the day you won't have to work again. Here's the good news: you can already take simple actions to maximize your savings towards a happy retirement.

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When you turn 40, the prospect of retirement becomes more tangible. It is best not to delay planning since the government programs are most likely to only partly cover your needs. It is your savings that will make up for the balance and even generate most of your retirement income.

To maintain your lifestyle after retirement, a simple rule anticipates that you need to receive approximately 70% of your gross income earned working full-time, which gives you a good idea. Establishing a budget with a financial planner will allow you to determine your needs more accurately. All the more relevant since your retirement could be extended: in Quebec, life expectancy at birth is over 80 years and exceeds 85 years who reach the age of 65.

Fortunately, you still have a few years to maximize your retirement savings. Here’s are some tips.

1. Reduce your expenses to save more

Start with improving your saving capacity. Picture all the expenses you can drop or reduce: restaurants, outings, coffee, trips, etc. Shop around for your telecommunications plans and for your insurance, you can save a lot there. Also, consider pushing back the purchase of a new car or opting for an economic model.

2. Get rid of your consumer debt

Before you leave for retirement, try to clear out all your credit card balance. To do so, pay back more than the minimum payment every month, prioritizing your cards with a higher interest rate. To avoid loading them again, take the time to reflect on any purchase.

3. Resist the temptation to increase your expenses

Your mortgage is coming close to be paid out. Your children are growing and becoming more and more financially autonomous. You're about to reduce some expenses soon and you're already thinking of travelling or treat yourself? If you're in good health, you'll have plenty of time to reward yourself later. It is safer to build up a financial cushion for retirement first.

The same thing goes if you receive a pay increase, a bonus or an inheritance. When you have extra income, avoid increasing your expenses and instead transfer part or all of these funds to your retirement savings.

4. Downsize your home

If your kids are leaving the nest, it may the time for you to move into a smaller home that fits your need better in terms of space and commodities. You could benefit from the past years housing market growth and take profit, generating a sum to invest for retirement. And if you get closer to public transit, you could reduce your car expenses as well.

5. Take advantage of registered plans

The government incites to prepare for retirement registered plans sheltering taxes on your savings for a limited time. Take avantage of these few years prior retirement to maximize the use of these plans.

Same thigs goes if you are benefiting from your employer’s supplementary pension plan, such as a Group Registered Retirement Savings Plan (RRSP), a Voluntary Retirement Savings Plans (VRSPs) or The Pooled Registered Pension Plan (PRPP).

RRSP

Every year, you can place up to 18% to your employment income in a Registered Retirement Savings Plan (RRSP). The maximum you can contribute for the year 2018 is $26 230. Don't forget that you can contribute to your RRSP until December 31st of the year your reach 71 years-old.

TFSA

You can contribute up to $5500 a year to a Tax-Free Savings Account. Since the creation of savings vehicle was created in 2009 and until 2018 inclusively, the total contribution room reaches $57 000. Keep in mind that there is no age limit to contribute to a TFSA.

6. Do some catching-up

You haven't been using your entire contribution in the past? You can catch-up on it. The Canada Revenue Agency can tell how much you can contribute in order to reach your RRSP and TFSA ceiling.

Do you have funds that are suddenly available to you like an inheritance or profit from the sale of your home? Consider exploiting your unused contribution room. You could place the funds received in your CELI to add to your retirement income without increasing your tax rate payable at retirement or cutting in your Old Age Security pension.

7. Opt for automatic payments

Saving is not always easy. Systematic saving is a great way to put money aside for retirement without difficulty. These are automatic withdrawals debited from your bank account or deducted your paycheck. You will be saving without even noticing.

8. Don’t let your money sleep

Do you have savings in forms of cash, such as in a simple bank account? These funds are constantly losing value due to inflation and low interest rates. Even if a certain degree of prudence is called for your placements as you grow in age, you will have no return if you don't invest.

If you are in your 50s, your investment horizon is on the long-term. Thus, you should invest most of your saving,. A judicious balance of guaranteed investment certificate (CIG), bonds and company shares will increase your retirement income without taking undue risks.

9. Consider working longer

The majority of people in Quebec start receiving their Québec Pension Plan (CPP) before they turn 65. However, you would benefit from working until you reach that age or even furthermore, even if part-time. The more your employment income is covering your current needs, the more your savings continue to grow for your retirement. Not to mention that in addition to financial benefits, numerous studies demonstrate that keeping a professional activity later in life is an excellent way to keep healthy and live longer.

10. Wait before you receive your government pension

Once you retire, don't claim your Old Age Security (OAS) pension and your Québec Pension Plan (CPP) if financially viable. This delay will allow you to supplement these. If you claim them when you reach 70 years-old, they will have increased by 36% for the OAS and 42% for the RRQ.

This stage of your life is way too important not to plan it. Retraite Québec offers a lot of information and tools for planning. The National Bank's Retirement Guide and Info-Retirement bulletin also give you tips to optimize your retirement savings. For a good overview, don't hesitate to consult your National Bank financial planner for more information on getting your personalized plan MyIdea.

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