Planning for your retirement is easy to put off when you are young and gets very stressful as you approach retirement age. To have a fun and secure retirement, you need the funds to sustain yourself and fund everything you want to do once you retire. There is no right or wrong way to plan for your retirement, although you might need some help doing so. However, there are a few key things that you need to do to ensure a fun and secure retirement.
When Do You Want to Retire?
Before you start putting your plan in place, it is important to think about when you would like to retire. When you can actually retire will depend on your personal preferences as well as whether you have the funds to sustain yourself through your retirement. Most people plan on retiring when they hit the age of 65. That is reasonable as it is when you can start claiming social security benefits or withdrawing from your retirement funds. Some delay their retirement to the age of 70 because the benefits increase if they decide to delay their retirement.
Understand How Much Time You Have
Once you decide when you would like to retire, be it in 10 or 30 years, you can start putting the groundwork for your retirement plan in place. Your retirement investment goals will be very different depending on your age. If you are older, you can consider less risky investments that have a predictable return on investment so you do not put your retirement fund at risk. These include investments like stocks. You should also consider investments that have a regular dividend payout to achieve the preservation of your capital which you can withdraw later if you wish.
If you are younger, you can take on riskier investments that have been proven to grow well into the future. These include long-term investment options like stocks, mutual funds, real estate and the like. Investing in the right stocks is often better because stocks have been shown to outperform other investment options for the long term, especially if you are looking at a 10–30-year timeline. Additionally, you can sell stocks any time you like as your investment goals evolve as you get closer to retirement.
Regardless of the types of stocks you want to buy, whether they are individual, growth or dividend stocks, or you are looking to invest in stock funds like exchange-traded funds (ETFs) or mutual funds, buying stocks in Canada is relatively easy as long as you find the right platform to invest in. WealthSimple has an automated investing service through their WealthSimple Invest tool. They allow for auto-deposits, dividend reinvestment, automatic portfolio rebalancing and a lot more to make your investments grow and work for you. Their team of financial experts is standing by to offer advice, help you craft your portfolio, and answer any questions you have about buying stocks in Canada or other investment options you may be considering.
Determine Your Retirement Spending Needs
Determining how much you need to live comfortably once you retire is the best way to set realistic retirement goals. A common piece of advice is that your retirement funds should be able to cover 70-80% of what you are earning right now. The only problem is that this rule has been found to be false, especially in cases where people have debt, such as a mortgage, or when they have unexpected medical needs.
A better rule is that you should have enough to spend about 90% of what you are earning right now and the closer this ratio is to 100%, the better it will be for you. This ratio is based on the fact that people are living longer so they want to enjoy their lives longer. There is also the need to think about unexpected expenses such as travel or healthcare and you need to have funds you cover for all these expenses.
Another rule is that if you plan on spending a lot of money when you retire, you should plan on saving more today. Knowing how much you will spend once you retire will also determine how much you can take out of your retirement accounts in a given year which affects how much you need to put into those accounts today.
Know How Your Portfolio is Being Handled
Whether you are an investment professional or are having someone invest your money for you, you need to know how your portfolio is being handled.
For regular investments, you might take some risk, but for retirement planning, you need to balance risk and returns. This means you only need to take as much risk as you need to to ensure a healthy retirement account.
You also need to know which risks are necessary and which would be considered a luxury. For example, taking a risk on real estate investments is necessary if you are looking to diversify your portfolio, but taking on the risk that comes with cryptocurrency investment might not align with your goals.
These risks and rewards should be discussed seriously with a financial manager to ensure you are not putting your investments at too much risk.
Choose a Retirement Plan That Works for You
Even when you are making other investments, it is still important to choose a retirement plan that works for you. For most people, an employer retirement plan is a great option for several reasons. For one, your employer might decide to automatically put money in your retirement plan so you do not have to think about it. If they do not do this, they will often match your contributions, which is a great way to incentivise you to save as much as possible.
Several retirement plans are not taxed in Canada such as the Registered Retirement Savings Plan (RRSP) which is great for those who want to grow their portfolio safely and without taxation. Another option is the Tax-free Savings Account (TFSA) which allows you to set aside some money and withdraw it without any penalties. This savings account pays a high interest rate and the interest is not taxed. You can save money into a TFSA up to the government limit.
Take Care of Your Debts
Debts can hinder your life in several ways, both before and after retirement. Before retirement, debts can make it harder to save enough money since you are trying to avoid the penalties that come with late payments. Debt also makes it hard to build wealth since you will have a harder time accessing credit. This is another way that debt hinders your retirement plans.
Debt also reduces the amount of money you have to spend once you retire. This is because you have to think about things like mortgage payments if you do not want your loved ones to have to deal with these issues once you pass on. This can put a lot of strain on your life at a time you should be relaxing and enjoying it.
To avoid all this, only take on sensible debt and pay off as much of it as possible before retirement.
Consider Healthcare Costs
Although many people already have health insurance that can cater to most of their medical costs once they retire, it is always a good idea to have some money set aside for healthcare costs. These costs are required when your regular insurance will not cover some non-routine expenses. This is also true when it comes to the coverage of long-term care by some insurance companies.
Try to get insurance that specifically covers everything you think you might need once you retire, such as home healthcare aides. Buying additional health insurance earlier and when you are younger and healthy will lead to lower premiums than if you wait until you are close to retirement.
Think About Where You Will Live
You also need to think about where you will live once you retire because where you live will determine your annual retirement expenses. If you already have a house or property that is expensive to maintain, selling it and moving somewhere the tax or cost of living is lower could drastically reduce your living expenses. This will leave some money free for other expenses.
The areas you can live in will be determined by your needs and how much you would like to spend on housing, but the bottom line is that you need a financially manageable home. Do not forget to consider other factors such as access to the things you need as well as how close you will be to your family once you decide to make the move.
Planning for retirement takes a lot of time and thought and this is why you need to start as soon as you can. Start by thinking about what your life will look like after retirement and then think about how much you will need to have that life. Do not forget to make the necessary adjustments to ensure the funds you have give you the comfortable retirement life you have always wanted.
Key Steps to Secure a Fun, Secure Retirement
