Five Essential Retirement Planning Steps

The foundation of any effective retirement plan is determining at what age you would like to stop working full time and tap into your hard-earned savings. The number of years between today and the start of your retirement will significantly impact several factors like your risk threshold, tax planning, and inflation.

The best time to get started on retirement planning is right now. The earlier you get started, the more compound interest will work in your favour, giving you more time to build upon your nest egg.

Now that you have laid out your goals and timeframe, it’s time to think about risk. The general rule of thumb for risk is that the more time you have, the more risk you can take on. If you are in your late 20s, you can take on more volatile investments, like stocks. You have lots of time to weather a stock’s peaks and valleys.

As you approach retirement age, you are focused on preserving your capital. You are more concentrated on lower-risk options like bonds.

Be sure to take full advantage of retirement investment accounts like an RRSP. Open an account early and set up automatic contributions from your income, helping you reduce the taxes you’d otherwise pay (bonus if your employer has an RRSP matching program!). Look online for an RRSP calculator to see if you’re saving enough through your contributions to meet your retirement goals.

A critical component of retirement planning is estimating future expenses, and part of that calculation is determining what debt load you will retain in your retirement. As you age, living debt-free becomes a more realistic goal. Paying off your mortgage and eliminating debt should be part of your retirement plan, so you don’t spend hard-earned savings paying down interest in your golden years.

The first step to a smart debt-elimination strategy is to start with your highest interest debts (like outstanding credit card bills or a line of credit) and develop a realistic timeline for paying off all other debts (like car payments and your mortgage) before retirement age. By starting your retirement free from debt burdens, you’ll benefit from the peace of mind, reduced stress, and the financial freedom to live the way you want.

While your retirement goals may focus upon how you want to enjoy your life in the future, your retirement plan is not just about you. Considering what will happen to your loved ones after you pass is integral part to the retirement planning process and any sound financial strategy.

Part of your goals may involve a more modest retirement so that you can leave a large amount of your savings to your grandchildren or a charity.

Estate planning is a complicated process that could involve financial planners, lawyers, or accountants. Getting this process started early can help you put more money away for the people or causes that matter to you. Your estate planning strategy is flexible, and you can adjust your plan as your financial goals, assets, and wishes evolve.

Alongside estate planning, life insurance may be another way to safeguard the financial future of those you love. Life insurance coverage can ensure that any remaining debts or expenses you carry into your retirement won’t fall upon your loved ones if you pass away unexpectedly. Your death benefit can be used by your loved ones in all kinds of meaningful ways, from paying for costly funeral expenses, helping to fund your grandchild’s college tuition or to leave a donation to a cause that you championed.

You may also consider a living benefit, like Critical Illness Insurance, as part of your financial planning for retirement. Critical illness insurance is a lump sum payment if you are diagnosed with a covered illness, like cancer or a heart condition. As you age, the likelihood of contracting one of these medical conditions increases.

Should you be diagnosed with a critical illness, this type of insurance can provide you with the funds you need to focus on getting better and lessening the financial stress of the situation, including keeping your retirement goals on track.

If diagnosed with a critical illness during retirement, consider that your employer’s disability insurance policy would no longer cover you. While your Provincial Healthcare Plan may cover some costs associated with your treatment, there may be other significant expenses that you’ll need to pay out of pocket. With Critical Illness Insurance coverage, you can avoid digging into your retirement savings to deal with any costs associated with your recovery.