It may seem far off now, but retirement has a way of sneaking up on hard-working consumers. And the earlier you begin planning for your golden years, the more money you’ll have saved up.
Investing now can increase your nest egg exponentially over the next few decades, but it’s not due to some “get rich quick” scheme. It’s better to carefully consider how you’ll have enough money to live a comfortable lifestyle after you’ve stopped working. Here are some tips that can help you put a plan together.
1. Make a plan. This may sound like very basic advice, but the truth is that most people have no idea how to go about calculating how much they should save for retirement. Minimally, you will need an average of 80 percent of your current income to be able to maintain your lifestyle after retiring, and if you plan on travelling, you’ll need even more. So before you start to save, set a goal for how much you plan to tuck away.
2. Tap into the power of tax savings. Your registered retirement savings plan may be tax free, but that doesn’t mean that taxes don’t play a big part in your retirement plan. For example, you should be diverting all or at least a portion of your income tax return to your retirement savings. And you should be maximizing your tax deductions so that you’ll have a little extra money to invest each year into your retirement plan.
3. Find out about how your employer handles pension. Don’t be afraid to ask your company if it has a pension plan for its employees and what the stipulations of that plan are. You should be able to find out how much your employee will contribute to your pension and what will happen to the money in the event that you change jobs. Saving money through an employment-sponsored plan is another way to avoid taxes on your retirement income.
4. Pay off Some of Your Debts. As you embark on a journey to save money, you will have to figure out how to balance those saving efforts with an effort to eliminate your debt. While there are many kinds of “good” debt, such as school loans and a mortgage, the money that you owe on your credit cards isn’t one of them. Because the interest that you end up paying in this category isn’t helping you further your finances, it would be better spent in an RRSP. If you must have a credit card, look for one that makes it easier to contribute to your savings or one that gives you cash back on purchases.
5. Invest smartly. Remember that the younger you are, the more aggressively you can afford to invest in your money. While it’s true that you should make safer investments as you near retirement, don’t pull the plug too soon on your investments; many people reduce their saving power by switching to “safer” investments before it’s necessary. Besides, your portfolio should be diverse enough at all times that you won’t lose it all.
6. Take a “hands off” approach. Not when it comes to knowing about how your money is invested, but when it comes to the money itself, you should leave it alone under most circumstances. If you withdraw your retirement money early, not only will you have less to count on later in life, but you will also have to pay penalties and taxes for doing so, meaning that you will have reduced your spending power.
7. Don’t forget about CPP and OAS. Though you shouldn’t depend primarily on these two sources of retirement income, it’s important to get a full scope of where your money will come from when you are no longer working. These two public programs are meant to help you live a comfortable lifestyle, but you should find out what percentage of your pre-retirement income they will offer you so that you can accurately calculate how to make up the difference.
Your retirement income should come from several different places, and it can be a balancing act to keep up with all of those accounts. But if you put in the work now, you’ll be glad you’re able to enjoy your retirement worry-free later in life.