There are a lot of components to consider when planning your retirement. How much do you need to save? When you picture your retirement years, what do they look like? At what age do you want to retire? And, perhaps one of the biggest questions: how can you make sure you retire comfortably?
It’s easy to get caught up in numbers and what you think you should save for retirement. It’s also easy to get overwhelmed by all the pieces that fit together to help you retire the way you’ve imagined. We’re here to tell you it doesn’t have to be complicated, and you can set yourself up for a comfortable retirement with these three steps.
Be realistic about your lifestyle
You’ve probably heard that a million-dollar nest egg is the key to retiring well. The reality is that your retirement goals will be different than those of your friends and family, and those goals will determine the way you save leading up to your last day in the workplace. The “million-dollar” number will vary person to person.
Instead of thinking about your retirement savings as just a number, think realistically about your goals and how they tie into your retirement savings. After defining the cost of everyday living expenses, consider the cost of your goals. If you want to vacation in a tropical place during the winter months, how much will you have to save for travel expenses per year? On the other hand, think about the existing income you’ll have to supplement those expenses. Be sure to include CPP & OAS payments, any existing work pension, or income from other sources like a rental property. The difference between your desired income and your supplemental income is what you’ll need to save. Note that your saving target could be supplemented by events like downsizing your home, but the majority will come from your investments.
Remember to also consider what age you plan on retiring. If you want to retire early, you’ll need to account for a bigger nest egg. If you can work for a few more years, you’ll reach your retirement income goal faster. To help you figure out how much money you’ll need to have saved for retirement, you can use this formula.
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Invest in the right account
An important element in effectively reaching your retirement goal is to invest in the right account. Registered retirement savings plans (RRSPs) are great options for making the most of your retirement savings, and provide tax benefits that can help you further your savings. Work with an advisor to determine the right risk tolerance for your goal and time horizon to ensure you’re getting appropriate returns on your money.
If your employer offers a group retirement savings plan, make sure to contribute, especially if you get an employer match. Among other benefits, this is free money and, should you choose to transfer a portion of your pre-tax income into your account, those funds will be tax-sheltered.
Remember to save regularly, and consider setting up pre-authorized contributions for your RRSP. This will allow your savings to compound overtime, and ultimately grow faster. To make sure you’re on the right path to achieving your savings goal, consider using a financial planning tool like InvisorGPS™ to keep track of your progress.
Understand the impact of fees
Canadians pay some of the highest mutual fund fees in the world, sitting around 2.5%. And while paying over 2.5% in fees may not sound like much, it’s $25,000 a year for a $1 million-dollar investment. In other words, it’s money lost that could be used to fund your retirement.
Understanding how fees affect your savings, both positively and negatively, is an important element in reaching your goals on time, or sooner. Shaving off 1% of fees can be the difference in retiring when you want to, or working a few more years to increase your savings.
Fortunately, there are several lower cost alternatives on the market to choose from. To figure out what works for you, think about the value you want to receive from an advisor. If they provide extra financial planning services, you may be okay with paying a little more for fees. If you want a low-cost, hands-off approach, you may want to research online advisor options. There’s no right answer – choose whatever feels most comfortable for you. The key here is to understand how fees affect your savings, and evaluating the best investment solution for you and your situation.
Retiring comfortably is a matter of identifying your goals and saving towards them accordingly. Have a clear idea of what you want your retirement to look like and understand how the right account and low fees can help further your savings. That vacation spot in Florida could be more attainable than you think.