Are you approaching your retirement age? With Canada’s aging population and the youngest Baby Boomer turning 57 this year, retiring might be on many people’s minds. Whether you’re five, ten, or 30 years away from retirement, it’s good to start preparing for it early. This stage of life is often framed as one of relaxation and rest, and while this is true, it also takes a lot of time and planning to be ready for it. The road to retirement starts long before you approach your final weeks at work. From your finances to your plans for your will, there are a lot of things to consider. Here’s what you need to prepare for retirement.
How will your budget change?
When you retire, your budget will have to adapt to your new financial circumstances. For many people, retirement comes with a pension plan, and most Canadian retirees are eligible for the Canada Pension Plan or Old Age Security. These public pension plans from the government depend on factors like your age and how long you have lived in Canada. In any case, retiring means you will no longer be receiving your full income from your job. You will likely have to make some changes to your budget and lifestyle to fit your new income. If you want to start travelling more, for example, make room for that in your budget. You will be able to cut out expenses such as work clothing, parking, and travel expenses. When we prepare for retirement, our lifestyles and spending habits change. Make sure your budget keeps up!
Prepare for assistance with financial independence
As you get older, it becomes more important to have a trusted individual who will handle your finances if you lose the ability to manage your money, physically or mentally. There may come a time when you need to hand over control to someone else. It becomes very difficult for family members if you are no longer able to manage your finances, but haven’t signed a Power of Attorney. A Power of Attorney is a document that gives one or more people the power to take care of your finances and property. This person can handle almost any aspect of your finances, including your banking, buying and selling property, signing and depositing checks, etc. It’s essential that you trust this person to act on your behalf and make sure they understand the responsibilities. Be sure you have a clear discussion with them, and confirm they want the job. You can give more than one person this power, but that can lead to challenges if there are arguments about how money should be used.
Keep your will current
Much like with managing your finances, your will should also be set in place by the time you prepare for retirement. You should have a will made as soon as you own any assets or have children, but if you haven’t done so, do it now. If you have a will, make sure it’s updated to reflect your current circumstances. Again, not having a will makes it hard for family to deal with your assets and money after you die. Also, make sure trusted individuals know where you keep your will to avoid unnecessary delays. Be sure to name an executor, who is the person who will handle your estate when you die. If you do not, the provincial government will have to name one for you. Again, this can lead to unnecessary complications and delays.
Don’t forget about RRSPs!
Finally, having a Registered Retirement Savings Plan is one of the best ways to prepare for retirement financially. RRSP accounts specifically help Canadians save for retirement. You can contribute to your RRSP based on your annual income, with a maximum of 18 per cent every year, or $27,830, whichever comes first. Any money you put into this account will not be taxed until you withdraw it. Since you likely won’t take it out until after retirement, when your annual income will be lower, you will be taxed less for it. This also means your taxable income every year you contribute to your RRSP will be lower. You should ideally add 10 per cent of your income each year, but no more than you can truly afford.
Retirement is an exciting part of your life! However, you want to avoid as many difficulties as you can while preparing for it. Following these tips gives you the foundation of what you should do before you can hand in your final notice. Prepare for retirement by giving yourself and your loved ones as easy an experience as possible!
If you have any questions about your mortgage or finances, get in touch with me!