Preparing for retirement takes planning. While we all from time to time (some perhaps more often!) dream of the day when we will no longer be working and will be free to spend our time as we please, the reality is that being in a position to retire means ensuring that we have adequate funds to live on. If your plan is to retire at age 60, remember that you may enjoy 20 or 30 years more on the planet and will need money for each of them. When thinking about retirement preparation, you must take into account your income from all sources (pension plans, RRSPs and other income). In order to help you work out the scenario that best suits you, use the RRSP Calculator for Retirement Planning.
You need to know where you stand financially before considering your actual moment of retirement. Most people who go through this exercise find that they need to start accelerating their rate of savings in order to meet their needs. Determining what these needs are involves taking several factors into consideration.
Common wisdom says that you will need approximately 70% of your pre-retirement income in order to live comfortably in retirement. Some will need more, and some will need less - truly this is a factor of how much you have managed to save, what kind of a retirement lifestyle you envision, and whether or not you are willing to make lifestyle adjustments.
Your age at retirement also plays a role. If you plan to retire at age 55, don't forget that the length of time you will need to support yourself without your pre-retirement income may be longer than the entire length of your career.
There are not many employers - save for large organizations or government agencies - who are in a position to offer their employees pension plans. The best plans of all are those in which the employer ensures that 5-10% of your earnings are secured for your pension. Other plans allow employees to save money on their own, and your contributions to this type of plan may be matched by the employer.
Government pension plans - the Canada Pension Plan (CPP), Quebec Pension Plan (QPP), or Old Age Security (OAS) - will provide you with some benefits upon retirement, although it will come as no surprise that the amount you will see fromthese programs will not be enough for you to live on without the benefit of other savings. How much you will get from the QPP depends on how much you have contributed to the plan, and for how long.
An RRSP should be an integral part of your wealth management strategy, particularly if you are between 20 and 45 years old. To make the most of an RRSP, consider the following tactics: