Retirement may seem far away, or it might feel like it’s just around the corner.
Either way, it’s important to have a plan in motion to retire comfortably.
Five Steps to Help Kick-start Your Retirement-Planning
1. Understand Your Current Financial Position
One of the first steps towards knowing how much you can tuck away for retirement involves knowing where your finances currently stand.
Gather all the information you have about your finances including your current income, debt, as well as your expenses. This will help you define your financial priorities, and what you can afford to put towards your retirement plan.
Of course, anyone’s financial situation can change over time. Check back in with your finances and expenses regularly so your plan can be adjusted accordingly.
2. Clearly Define Your Financial Priorities
Take time to think about your financial goals. What do you want to achieve with your money short-term and long-term?
Recognize Short-term and Long-Term Financial Goals
Short-term financial goals have a more limited time horizon. Examples of short-term money goals could include saving for a car, purchasing household furniture, or saving for a vacation. Remember that meeting short-term goals can impact your ability to reach long-term goals.
Long-term financial goals have longer time horizons, which may span over multiple years or even decades. Examples include paying off a mortgage, or saving for a child’s future education costs or your retirement.
Depending on your life stage, saving or investing for retirement may be a short- or long-term goal.
3. Develop a Financial Roadmap
Once you’ve thought about your financial goals, you can create a roadmap to achieve them. If investing is part of your plan, you may want to work with a registered investment advisor to help you plan and strategize.
Determine How Much Money You Need to Save for Retirement
When creating your retirement plan, set goals that are specific and realistic.
- Realistic goals feel more attainable and may help you stay more motivated to reach them.
- Specific goals give clarity on exactly how much you should be saving or investing each month for retirement.
If you don’t yet know how much money you will need for your retirement, take the time to do some research. When working with a registered investment advisor, don’t be afraid to ask them lots of questions. Learn more about how to set suitable financial goals.
Work Within a Budget
Budgeting can be a useful tool to help you balance your current income and expenses. This Financial Consumer Agency of Canada budget planner can help you create a personalized budget.
Understand How Risk Tolerance Impacts Your Financial Plan
Your risk tolerance will help shape your goals, especially if you’re considering investing to reach your retirement goals. Factors that affect your risk tolerance include:
- Time horizons
- Cash requirements
- Emotional factors
It’s important to understand how much risk you are willing to take with your money when you create your roadmap. Take our Risk Tolerance Test to learn more about risk tolerance and your personal risk profile.
4. Set Your Retirement Plan in Motion
At this point, it’s a good idea to look into saving and investing as vehicles to help you reach your retirement goals. You may be better suited to one or the other, or both, according to your unique financial position. You can explore whether you’re currently a saver or investor by taking our quiz.
Remember: You don’t necessarily need a lot of money to start planning for your retirement. Even a small amount saved from each pay day can help you build your nest egg over time.
Consider Using Registered Accounts
Registered accounts can help grow your funds.
A registered account can hold cash and other investment products such as stocks and bonds. A registered investment advisor can help you set up these accounts. Registered accounts include a Tax-Free Savings Account (TFSA), a Registered Retirement Savings Plan (RRSP), and a Registered Disability Savings Plan (RDSP).
5. Revisit Your Plan
Planning for retirement is an ongoing journey, and how much money you’ll need to save for retirement is unique to you. Stay informed and engaged along the way, especially if your financial situation changes over time.
Use a Financial Checklist To Stay Organized
The Government of Canada provides a retirement financial checklist to help you manage different aspects of retirement planning. The checklist includes:
- Adjusting your budget as you get closer to retiring
- Learning about public pensions, and when you should apply for public pension benefits
- Understanding which tax credits you may be eligible for
- Planning or updating a will
Revisiting your retirement plan also means checking in with your financial goals. This can help you stay on track and reflect on your progress. If you’re working with a registered investment advisor, check in with them periodically to see if your retirement plan still works for you.
Why it’s Important to Save for Retirement Now
Putting money aside as soon as you’re able to increases your time horizon to build a retirement fund. Your time horizon is the amount of time you have to meet your financial goals, and to make up for any losses you might experience.
Saving now will give your money more time to grow.
How Inflation Can Affect Your Retirement Funds
Inflation is the rise in the prices of goods and services. Over time, inflation will increase the cost of goods and services you buy, while reducing the buying power of your money.
When planning for retirement, it’s important to keep inflation in mind, especially if you have a longer time horizon. For example, say the inflation rate is 2%. If you want to retire 20 years from now and you’re aiming to save what $50,000 will buy today, then you will need $74,300 in order to cover your costs in 20 years.
This example above came from the Government of Canada website. Check it out to find out more about how inflation can affect your retirement savings.
Report a Concern
If you have any concerns about a person or company offering an investment opportunity, please contact BCSC Inquiries at 604-899-6854 or 1-800-373-6393, or through e-mail at [email protected]. You can also file a complaint or submit a tip anonymously using BCSC’s online complaint form.