Thinking about retirement has become a major cause of stress for most aging Canadians. Will I be able to retire comfortably? When can I retire? How much do I need to retire? These are just some of the questions that often cross our minds. Regardless of your net worth or stage in life, achieving your retirement goals involves time, commitment and most importantly a retirement plan. It is important to start planning at a young age and to continuously update your plan with your advisor as you move through your various life cycles. Here are some tools to help you plan for retirement and in turn achieve your goals.

Step 1: Set your retirement goals:

Similar to other plans, retirement planning should be goal-based. Each person’s goals are different and should reflect their own personal needs and desires. Some common retirement goals may include:

• Travelling
• Picking up a hobby or new activity
• Determining your quality of living during retirement (modest to lavish)
• Spending time with family / grandkids

Even though we know these goals may change over time, having a target in mind will help navigate your path to a successful retirement.

Step 2: Determine your ideal retirement age:

While age 65 is often synonymous with retirement, not everyone believes that is the right age to retire. Many people have said ‘’ I will never fully retire’’ while others may have the luxury of an early retirement. The key is to have an idea of where you stand to help navigate the timeline for your personal retirement plan. Furthermore, many government plans & pensions (QPP / CPP, OAS, RRSP to RIF conversions etc.) are age-dependent and can therefore have an impact on your goals and decisions. While we never really know when we will retire, planning around our ideal retirement age will prove to be beneficial long-term.

Step 3: Estimate your expenses during retirement:

While most people estimate that their expenses will drop during retirement, it is essential to formally identify what that cost of living looks like. It is important to adjust those expenses for inflation based on your ideal retirement age and not on today’s dollar value. This will enable us to determine if your sources of income will be sufficient to cover your expenses all while maintaining an emergency fund. We suggest creating a list of expenses that may disappear in retirement vs new expenses that may arise.

Common expenses that could disappear during retirement include:

•  Mortgage, childcare and education costs
•  Life insurance premiums & retirement savings

Common expenses that may increase during retirement include:

•  Travel expenses & other retirement goals
•  Medical expenses, housing repairs and expenses
• Estate planning and succession costs

Step 4: Calculate how much money you will need during retirement:

Once we have determined a rough estimate of our annual retirement needs, how do we make sure we have enough? Here is a simplified approach to calculating how much you need to put aside:

1. Determine number of years spent in retirement (life expectancy + 5 yrs – ideal retirement age)

2. Estimate all sources of income during retirement

• Pensions (private and public),
• Part-time work etc.

3. Reduce your annual estimated retirement expenses by your projected income stream (step 2)
4. Multiply the number in step 3 by # of retirement years and adjust for inflation
For Eg.
i. Retirement Years = 25 (+ 5 year adjustment) = 30 Years
ii. Annual Net Expenses (after Income) = $60,000
iii. Inflation: 3%

NET Retirement Need: $2.95Mill 

Step 5: Come up with a plan:

Now that we have identified our retirement need, we must implement a plan to reach your goal. It is imperative that we take full advantage of the right accounts and retirement tools at our disposal. Simply saving without allocating assets in the right places can prove to be costly and inefficient. Here are some retirement tools to consider as part of your retirement plan.

1.    Registered Retirement Savings Plan (RRSP)

• Tax-sheltered plan designed for long-term retirement goals
• Contributions are tax-deductible during working years
• Limit 18% of annual taxable income to a max. ($31,560 for 2024) + unused room

2.    Tax-Free Savings Account (TFSA)

• Tax- free growth & Potential tax-free withdrawals
• Contributions are NOT tax-deductible
• Annual limit of $7000 (2024)- lifetime limit of $95,000

3. Group retirement plans & sponsored plans

• Similar to an RRSP, but sponsored by an employer/association
• Contributions may be matched by an employer or association
• Reduces your RRSP contribution room

4. Non -Registered accounts:

• Regular investment accounts are subject to taxes
• Only to be used after TFSA & RRSP maxed out

5. IPP & Corporate Savings

• For incorporated professionals/business owners
• Take advantage of reduced business tax rates

6. Whole Life Insurance

• Tax-deferred growth of capital & tax efficiencies
• CIRP – Corporate Insured Retirement Plan

With so many options at your disposal, it is important to sit down with your financial planner/advisor to determine how to use each account most effectively. Your retirement plan will likely be comprised of a mix of different accounts each serving a different purpose.

Want to know more?

Planning for retirement can be a very daunting task, however it is crucial to start as soon as possible. We have all heard about the power of the compounding effect and getting a head start will allow you to realize your retirement goals with much more ease. Contact your Oberoi Financial Group advisor to get started on your retirement plan and start to make those dreams a reality.