How to plan your retirement in 4 steps

27 July 2022 by National Bank
Drawing of a marked document with steps of a retirement plan

Whether you love the Florida sun or camping in the Rockies, playing golf or lounging by the pool, achieving your retirement goals just takes a little planning. The better you prepare, the easier it will be for you to reach these goals—no matter what they are. Follow these 4 steps to plan your retirement.

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1- Organize your documents

Start by gathering all the information you need and organizing your documents—whether on paper or in electronic form. This will give you a better overview of your financial situation: assets, liabilities and income after retirement (pension, etc.). This step is well worth the time. It's like taking all your ingredients out before you start a recipe: it makes the whole cooking process easier.

Here are some of the documents you should get together: 

  • Statements for your assets (personal property and investments, whether registered (RRSP, TFSA, etc.) or non-registered)
  • Statements for your liabilities (mortgage loan, line of credit, credit card, etc.)
  • Employer pension plan statement
  • Canada Pension Plan statement, or Quebec Pension Plan statement if you're in Quebec 

2- Define your retirement goals

You'll have to ask yourself a few questions to properly plan your retirement. Think about your goals and the lifestyle you want. Get to know yourself a little better! A little reflection is sure to improve your chances of getting the retirement you dream of. Here are a few questions you should consider:

At what age do you plan to retire?

Have you thought about when you plan to retire? This is a big decision, since it means ending your career—which may be a key component of your identity. It's important to put some thought into it. The following questions could help you make the right decision:

  • Do you plan to retire gradually? Some people start by reducing their working hours in the run-up to retirement. It can help you smooth the transition and adjust to a lower salary, instead of losing your salary entirely from one day to the next. Depending on your needs and what you plan to do, you may want to consider this option.
  • What is your health status likely to be? Will you be able to achieve your goals, or keep working if you need to? Of course, it's difficult to predict your future health status, but it's a good idea to keep it in mind.
  • Do you have a pension plan with your employer? If you have a pension plan with your employer, you should be aware that your retirement age will affect the benefits you'll receive.  Contact your employer for more information.

What are your retirement plans?

Are you planning to move, travel, buy a second home or renovate your home? Or would you rather go back to school, volunteer, or work on your hobbies—photography, baking or birdwatching? Or maybe even take on a part-time job? To pursue all the options available to you, first you'll need to make sure you have the means. That's why it's important to plan in advance. 

Make a list, estimate the associated expenses, and include them in your budget

3- Take stock of your budget

Now that you've got all the documents you need and you've defined your goals, it's time to draw up a budget and think about your retirement plan. These two tools are complementary. 

A budget will help you assess your income and expenses so you can plan your day-to-day finances. You should start by drawing up your current budget. This will help you and your financial advisor build a retirement plan to guide you in achieving your long-term objectives.

You can always adjust your budget in the future. Keep in mind that your lifestyle and needs are sure to change after retirement, so your expenses won't remain the same. Here are some expenses that may change:

  • Your mortgage payments 
  • Vehicle-related expenses (a two-car family may decide to just keep one, for example)
  • Work-related expenses (clothing, coffee, restaurants, etc.)
  • Entertainment expenses
  • Health-related expenses (especially if your insurance coverage decreases after retirement)
  • Your rent (if you move to a retirement home, for example)

Take the time to create your financial statement & get a clear overview of your personal  finances.

Get started

Another key point: To deal with the unexpected, plan to build an emergency fund

Identify your income sources after retirement

You now have a good idea of your future expenses and your goals. That's a step in the right direction. Now you'll need to take stock of your income sources after retirement. You may have access to a number of potential sources (government benefits, investments, employer pension plan, etc.). Here are some examples:

Tip: You may also be eligible for tax credits

Calculate how much you need for retirement

To calculate how much you need for your retirement, a good rule of thumb is to account for 70% of your average annual income (before income taxes and deductions).

This is because when you work, you're not living off 100% of your salary. Unless you're self-employed, taxes are taken out of your pay in addition to contributions and other deductions (union dues, Canada Pension Plan or Quebec Pension Plan, employer pension plan, RRSP, etc.). 

Talk to your advisor to make sure you're saving enough for your retirement each year.

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4- Get support in drawing up your retirement plan

One final tip for planning your dream retirement: You should consult a professional. They'll take stock of your projects and income sources and build a solid plan to help you achieve your goals. Your advisor will provide support and answer your questions. They can help you:

  • Find new ways to save
  • Create an emergency fund
  • Repay your debts
  • Choose the right investment vehicles
  • Simulate scenarios to help you achieve your retirement goals
  • Put together a smart withdrawal plan (so you can know which investments to cash in first)
  • Identify when to apply for government benefits
  • Understand pension income splitting

When should you start planning your retirement?

When planning your retirement, it's best to start early and have a solid retirement plan. It's no secret: the earlier you start, the more your savings will grow.  Even if you're not saving much in the beginning, it adds up over time. It's also a good idea to get into the habit of saving. Here are some of the benefits. If you're older, feel free to share them with your younger family members!

  • Reduce your financial stress by better understanding your finances
  • Help you decide when to take retirement 
  • Increase your financial independence—and your freedom
  • Recover financially if you need to take early retirement, since you'll already have a solid plan
  • Save money more easily, since you'll have more time and be able to benefit from the magic of compound interest
  • Get more chances to readjust your plans (if you find out you need to save more, you'll have time)

What if you don't have much money set aside and retirement is getting close? There are many ways to maximize your savings. When it comes to planning for retirement, the most common errors are not thinking about it, starting too late and not saving enough. You should also be aware of some myths about retirement planning. Planning for retirement is like planning a trip: it pays to be prepared. But your retirement will last a lot longer than that 3-week tour of Europe! 

It's a good idea to review your retirement plan and strategy with an advisor from time to time— especially when there have been major life changes, such as buying a house, getting a promotion or welcoming a new family member. You should also seek advice if you discover a new passion that's likely to be expensive. Do you want to buy a sailboat or travel the world by motorcycle? Go see your advisor first. We're here to answer your questions.

Would you like to discuss this with us? Contact your National Bank advisor or your wealth advisor at Financial National Bank for more info. Don't have an advisor? Schedule an appointment in just a few minutes.

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