Whether you are decades away from retirement or if it is just around the corner, being aware of the planning opportunities will take the fear and uncertainty out of this major life event.
Blue sky your retirement plans to get clarity
As you approach retirement, preparation and planning become extremely important to help ensure that this period of your life will be as comfortable as possible. If you are like most, you have spent considerable time contemplating the type of retirement you wish for yourself.
There are many lifestyle issues that need to be considered but to realize these dreams you must also be really secure in retirement, so the financial issues must be planned for as well.
The big question – How much will I need to retire?
Recent studies reported that middle and upper middle class couples spend approximately $50,000 to $60,000 per year in retirement. If this seems a lot lower than what you and your spouse are spending now, it probably is. That is because most retirees no longer have the same level of expenses around housing, education and raising a family.
The average age for retirement in Canada for males is age 62 (females, age 61). At that age, normal life expectancy is another 22 years. Many financial advisors use a rule of thumb that says you will need a nest egg of approximately 25 times your post-retirement spending.
The average CPP retirement pension is approximately $7,600 per year or approximately $15,000 per married couple (if spouse qualifies for income at same rate). Assuming a 4% withdrawal rate and adjusted for inflation this means that a middle class couple would require a retirement fund of $875,000 to $1,125,000. If you do not qualify for or wish to ignore your government benefits you would require between $1,250,000 and $1,500,000. For those lucky enough to have participated in a company pension plan, you may already have sufficient retirement income.
8 Retirement planning tips
Review your sources of retirement income
Eliminate or consolidate debt
Understand your government benefits
Know your company pension plan
Reduce or eliminate investment risk
Protect your savings and income
Know your health benefits
Review your estate planning strategy
Tax planning in retirement
Tax planning most likely was part of your investment strategy during your working years and you shouldn’t abandon that now just because you are retired. Tax planning is just as important as it was pre-retirement.
Pay attention to the following:
Mark your calendar for your 71st birthday
Defer your taxable retirement income until age 71
RRSP contributions in year you turn 71
Try to avoid any claw backs
Continue to obtain professional advice
Planning for a healthy retirement both financially and physically will ensure that you can enjoy a long and well deserved retirement on your terms.