Will you have the means to retire?

19 February 2020 by National Bank Investments
Retired woman playing spinning a hula hoop with her family.

Many factors play a part in the outcome of retirement planning, like lifestyle, future projects, and investments. The secret to a happy retirement is preparation: here are some guiding principles on how you can best prepare for the big event.

Set financial goals

In order to know how much to save for retirement, two rules of thumb are often used. The first recommends saving 10% of a gross salary every year. The second suggests that enough is saved upon retirement to receive 70% of your income annually. The latter is based on amounts offered by defined benefit pension plans and assumes that people have fewer needs during retirement, although this is not always the case.

These rules can help define goals, especially if you’re still young and your retirement plans are not yet clear.

Step 1: Determine your needs

Determining needs takes a little bit of work. Create a budget by taking note of all fixed expenses (mortgage, property taxes, internet, television, phone) and variable expenses (groceries, clothing, gas, recreation). Also think about the desired lifestyle in retirement and be as precise as possible.

Step 2: Assess what you already have

Have you not yet begun saving for retirement? That doesn’t necessarily mean that you have nothing. Do you own a house or investment property, a cottage or a business? They could eventually be sold at retirement or kept to generate ongoing income.

Step 3: Consider amounts that can be planned

Consider government programs and verify the amounts you could receive from the following:

Old Age Security

This federal government program gives retirement benefits to Canadians, whether they have worked or not. The amount received is not based on income. It is established based on the number of years the person has lived in Canada after the age of 18.

Guaranteed Income Supplement

If income is low at retirement, people can also receive this supplement from the federal government for those receiving Old Age Security.

Pension Plans

If you have a pension fund at work, you should also verify the benefits you could receive. If you have a group Registered Retirement Savings Plan (RRSP) or a Voluntary Retirement Savings Plan (VRSP), consider doing this as well.

Step 4: Imagine different scenarios to achieve your goals

Other factors to consider when planning for retirement are inflation and investment returns. A financial advisor can also provide even more precise projections depending on your situation.

Are you not currently saving enough? Go back to your budget. You can either revise your goals or increase your savings—or do a bit of both. The more years you have ahead of you, the easier making corrections will be. Put the odds in your favour and opt for systematic savings. It’s the best way to discipline yourself.

Step 5: Opt for the right vehicles

In the long term, choosing the right investment tools can make a big difference in your retirement savings. The most common tools include:

Registered Retirement Savings Plan (RRSP)

Funds deposited are tax deductible. You can reinvest your tax refunds and grow your savings faster. At retirement, withdrawals are taxable.

Tax-Free Savings Account (TFSA)

Funds grow tax-free. This means that returns are tax exempt. Contributions are not deductible, but withdrawals are not taxable either.

These tools can include different types of investments: mutual funds, exchange-traded funds, guaranteed investment certificates, stocks, bonds, etc. Portfolios should be well-diversified and correspond to your investor profile.

Step 6: Update your calculations

Review these calculations and strategy at every important stage in life. The purchase of a home, birth of a child or receiving a promotion at work are great examples of times to do so.

A budget, a retirement plan and a saving strategy are essential to determine how much you should save for retirement. They’re also the best way to achieve your goals. The sooner you start, the easier you’ll get there.

Legal disclamers

The information and the data supplied in the present document, including those supplied by third parties, are considered accurate at the time of their printing and were obtained from sources which we considered reliable. We reserve the right to modify them without advance notice. This information and data are supplied as informative content only. No representation or guarantee, explicit or implicit, is made as for the exactness, the quality and the complete character of this information and these data. The opinions expressed are not to be construed as solicitation or offer to buy or sell shares mentioned herein and should not be considered as recommendations.

National Bank Investments is a member of Canada’s Responsible Investment Association and a signatory of the United Nations-supported Principles for Responsible Investment.

©National Bank Investments Inc. All rights reserved. Reproduction in whole or in part is strictly prohibited without the prior written authorization of National Bank Investments Inc.

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