Retirement in the 90’s seemed a lot easier – you would work 35+ years for the same company, retire with a nice present and a pension.
Today…it looks a little different. Most people change jobs a few times over the course of their career or start their own business. At the same time, the life expectancy in increasing. Which means, more years to enjoy retirement, but on the flipside, there are more retirement years to fund.
The question is, how do you plan for retirement and avoid those common mistakes so many people make. Here are five common retirement planning errors and advice on how to avoid them.
Expecting the government to look after you
Most people that have lived and worked in Canada are counting on getting government benefits during those golden years. But did you know that if you qualify for all three: Old Age Security, Canada Pension Plan, and Guaranteed Income Supplement they only amount to about $24,000 per person per year – that won’t cover your living expense and food.
Planning Advice: It’s time to build up your income for retirement. Understand what you have saved already and if it’ll be enough. If the answer is no, then it’s time to make some adjustments. Saving a little extra monthly will help build your nest egg, or you may choose to postpone your retirement date by a year or look at a partial retirement to still earn a bit more.
Not taking advantage of tax-deferred plans
The foundation for retirement is setting aside money to support yourself later. But not being strategic about your plan can leave you subject to taxes.
Planning Advice: There are two important savings options you should be maximizing: RRSP and TFSA plans. Both plans allow your contributions to grow tax sheltered. RRSP or RRIFs aren’t taxed until you withdraw and are taxed based on your total income at that time. While TFSAs are tax-free. Since your contributions are made with after-tax income, you keep everything you take out.
Not having an estate plan
No estate planning doesn’t mean you need to have a mansion and millions of dollars – it’s simply the steps to preserve and protect everything you’ve worked hard to build. After all, you want to ensure there is a plan in place once you’re gone.
Planning Advice: Your will is a powerful tool in ensuring you safeguard the future of your loved one. At very least you should outline who inherits your belongings and name an executor (someone to administer your estate). If you don’t have an estate plan, reach out to a legal professional for guidance, the same goes for updating your plan. Things change, and you may need to add or remove from your original plan.
Not accounting for healthcare costs
As you get older, healthcare needs increase. Sure, right now, some are covered by your benefit plan at work but once you leave the workforce those perks may no longer be covered. Now the government does cover the cost of some medication for seniors, but there’s a lot more that isn’t covered.
Planning Advice: Look into whether or not you can continue your benefit plan after retirement. Some benefit plans can be switched to a standalone policy. The coverage might not be exactly what you had before, and you’ll have to cover the premiums, but it can be a more cost-effective way to help cover your healthcare needs.
Not being realistic
Understanding your vision for retirement is important – is it travelling the world on a sailboat or maybe just cutting back on the cold winters by going somewhere hot. But it all costs money and knowing just how much they’ll cost and how much you need to save now to live out your dreams is key.
Planning Advice: Retirement calculators are great for a general idea, but ultimately, it’s up to you what you’ll be spending in retirement. Look at your current budget and think – realistically what will change when you retire. Understanding what the cost is today verses when you retire (inflation is a real thing). If there is a gap between what you want and can afford – you have two options: dial back what you want or dial up your savings.
Retirement is the next greatest stage in your life, and it’s okay to ask for advice now to ensure it’s as fulfilling and exciting as your younger years were. This is your time to do what you want, whether it’s relaxing, travelling, or exploring hobbies you’ve put off, by focusing on your retirement plan now, you can feel confident in living out your vision.
