Though it may not be happening anytime soon, you might already be thinking of the day you won’t have to work again. Here’s the good news: you can take simple steps today to maximize your savings for a happy retirement—and it starts with this three-minute read.
To maintain your lifestyle during retirement, the rule of thumb is that you need to have approximately 70% of your gross income that you earned working full-time. Setting a budget with an investment advisor will allow you to determine your needs more accurately—all the more relevant since your retirement could be longer than you might think: in Quebec, life expectancy at birth is over 80 years and exceeds 85 years for those who reach the age of 65.
Here are 8 tips to maximize your savings for your retirement.
Start with improving your saving capacity. Picture all the debt and expenses you can drop or reduce: restaurants, outings, coffee, trips, etc. Shop around for your telecommunications plans and your insurance—you can save a lot there. Try to pay off your credit card balance. You might also want to consider pushing back the purchase of a new car or opting for a more economic model.
The same goes if you receive extra income. Avoid increasing your expenses and instead transfer part or all of these funds to your retirement savings.
If your kids are leaving the nest, it may be time for you to move
into a smaller home that fits your needs better in terms of space and
amenities. In this hot real estate market, you could make a profit off
the sale and invest the sum for your retirement. And if you move
closer to public transit, you could reduce your car expenses as
The government encourages people to plan for retirement through registered plans that allow you to defer paying taxes on your savings for a certain period of time. Be sure to take full advantage of these plans in the years leading up to your retirement.
The same goes if your employer offers an optional supplementary pension plan, such as a Group Registered Retirement Savings Plan (RRSP), a Voluntary Retirement Savings Plans (VRSP) or a Pooled Registered Pension Plan (PRPP).
Every year, you can put up to 18% to your employment income in a Registered Retirement Savings Plan (RRSP). The maximum amount you can contribute for the year 2020 is $27,230. Don’t forget that you can contribute to your RRSP until December 31 of the year you turn 71.
You can contribute up to $6,000 in 2020 to a Tax-Free Savings Account. Since its inception in 2009 until 2020 inclusively, the total contribution room of this savings vehicle is $69,500. Keep in mind that there is no age limit to contribute to a TFSA.
Have funds that are suddenly available to you like an inheritance or profits from the sale of your home? Consider taking advantage of your unused contribution room. You could place the funds received in your TFSA to add to your retirement income without increasing your tax rate payable at retirement or cutting into your Old Age Security pension.
Systematic saving is a great way to put money aside for retirement without feeling too much of an impact. These are automatic withdrawals debited from your bank account or deducted from your paycheck. You’ll be saving without even noticing.
The funds placed in a basic bank account are constantly losing value due to inflation and low interest rates. Even if a certain degree of caution in terms of your investments is a good idea as you get older, you won’t make any returns if you don’t invest.
If you are in your 50s, your investment horizon is still long-term ,so you should invest most of your savings. A judicious balance of guaranteed investment certificates (GICs), bonds and company shares will increase your retirement income without taking undue risks.
The majority of people in Quebec start receiving their Québec Pension Plan (QPP) before they turn 65. However, it’s to your advantage if you are able continue working until you reach age 65 or older, even if only part-time. The more your employment income can cover your current needs, the more your retirement savings can continue to grow.
Once you retire, don’t claim your Old Age Security (OAS) pension or your Québec Pension Plan (QPP) right away if you can afford it. Delaying will allow you to receive higher payouts. If you claim them when you reach age 70, they will have increased by 36% for the OAS and 42% for the QPP.
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