Have you saved enough to retire worry free? We'll explain how you
can find out, and what you can do to catch up if you've fallen
behind in saving for your retirement. Here's some advice to help you
reach your goals.
Are you asking yourself how much you need to retire? Good question.
Here's an idea of where you should be based on your age. It'll tell
you if you have some catching up to do.
Remember: This will give you an idea, but it's not an exact science. Knowing how much you need to save depends on several factors like your debts and whether you have a pension plan. In this example, we'll look at the case of someone who started saving for retirement when they were 30 by putting aside 18% of their income each year (RRSP contribution threshold). They have a Balanced investor profile and plan to retire at age 65.
Have you fallen behind in saving for retirement? The first thing to do so you can start catching up is talk to an expert. With your financial advisor or planner, you'll take stock of three important elements for planning your retirement:
Easier said than done? You said it. You'll have to draw up a budget,
but in most cases it's doable. Take a closer look and you may find
that increasing your retirement savings is in fact realistic. Start
with simple things like eating out less often and adjusting your
are plenty of tips to help you save money.
Could spending less and saving more be the way to go? It'll take discipline, and reducing your current standard of living isn't simple, but bear in mind that it will lead to a more comfortable retirement.
Remember that as you get older, saving can get easier (the kids have moved out and your earnings may have increased as well).
Another way to optimize your retirement savings is to repay
your debts. Repaying debts can eat up a big part of your budget,
and saving can be hard when you have debts to repay. But not all debts
are created equal; some can be more urgent than others and should be
In other cases, it may be better to save than to repay the entire debt right away. This is usually determined by how much interest you're paying and whether some of the interest is tax deductible. Talk to your financial planner or advisor about it. Together you can determine the right strategy for you.
There are several registered plans designed to encourage you to save. Here are three of them:
When it comes to choosing how to save for your retirement, there's more than one right strategy and one right plan. Whether you choose an RRSP or TFSA, for example, depends on a number of factors, so it's important to speak to a specialist. They'll help you draw up the right plan based on your situation.
Have you thought about using a systematic savings plan? It lets you save without having to think about it. You choose the amount and the frequency (e.g., every payday) of automatic deductions from your account. You can opt to automatically transfer money to any type of account, like a classic savings account, TFSA or RRSP.
Whenever possible, try to reinvest your income tax refunds in your RRSP or TFSA, or use them to pay down your debts. Pro tip: Contributing to your RRSP could result in a tax refund the following year. This helps your savings grow year after year. It's a great way to get your money working for you.
When it comes to RRSPs, getting started is often the hardest part.
With an RRSP
loan, you borrow money to contribute to your RRSP, and it could be
a good solution for you. By having to repay your loan each month, you
develop the discipline required to save for retirement. If you receive
a tax refund after making an RRSP contribution, you can easily use it
toward repaying your loan—you'll repay the loan more quickly and pay
less interest too.
Pro tip: Think about making it a short-term loan (e.g., one year) so you can repay it as quickly as possible. Check the interest rate on the RRSP loan against the interest you expect to earn with your RRSP. To make borrowing worth your while, the RRSP interest you'll earn should be higher than the loan interest you'll pay.
Do you own your home? You might consider selling and moving to a less expensive home when you retire. This could provide an injection of funds to use as a cash reserve for your retirement. It's important to be aware that real estate values can vary over time according to the market, so it's best not to depend solely on your home for your retirement capital. Mortgage rates can go up (resulting in higher monthly payments) and depending on the period, it can be a buyers' or sellers' market.
Homeowners might consider renting out all or part of their property—a cottage, a room or a basement apartment—to generate income. Check out the rental rules in effect in your municipality, province or territory before doing so, however, to make sure it's legal.
To earn additional income, you may also wish to work part time during retirement. It's probably best to check the tax impacts on your other income sources before sending out your resume.
When possible and if necessary, you might consider delaying your retirement by a few months or even a few years. It would allow you to continue receiving your salary a little longer, maximize your retirement savings and continue contributing to registered savings plans like your RRSP and TFSA. You can also take advantage of:
You could also consider revising your goals for retirement instead of delaying it. In the end, what's most important when you're behind in saving for retirement is to get professional advice and take action. No single solution works for everyone, but there are all sorts of strategies to help you reach your goals and maintain your lifestyle after retirement. We're here to answer your questions.
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