How To Financially Prepare for Retirement
Retirement is a special time that can be exciting and rewarding. Many people look towards retirement as a metaphorical second phase of youth––another opportunity to explore who you are, what you love, and what fulfills you. But it’s hard to relax into retirement when you’re worried about financial stability. After years of steady paychecks, it can be daunting to plan ahead for retirement. How much money will you need? What costs could surprise you and cut into your savings? Will you need more savings than you anticipate? All of these common questions are important to explore, and putting together a retirement plan can provide assurance and confidence for your next steps forward. Whether you’re months, weeks, or many years away from retirement, start making your retirement plan today. This article will explore how you can prepare, save, and plan for a comfortable retirement.
Create a budget and live within your means
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One of the most difficult things about retirement planning is getting a clear sense of how much money you regularly need to live comfortably. It can be unclear how much money you really need to maintain your lifestyle, even if you’re someone who manages your money thoughtfully. Use this opportunity to test out your retirement plan. Here’s how to get started with a retirement budget plan and to perform a trial run to see if your budget works:
Assess and plan using a budget tool
You can use a tool like the RBC Retirement Budget Calculator to shape a budget estimate for how much money you’ll need for your retirement plan. In just a few minutes, you’ll be able to calculate whether your income and expense balance will give you the stability you need after retirement.
Test your budget
Once you’ve used the budget calculator, you’ll have a rough estimate of your retirement budget. Create and implement a retirement budget trial run to see how it feels to live on the budget you’ve set out for your retirement.
Plan ahead of changes in your income
Don’t forget that along with your income, some of your expenses will change after retirement as well. For example, your daily commute to work might cost you gas money that you’ll be able to save in retirement. You may also have added costs upon retiring that are wise to anticipate––consider travel costs, memberships, the eventual costs of a nursing home or caregiver, the money you may want to pass on to family members to ensure their own financial confidence, and other factors that play into the big picture of your financial future.
Ask friends and family for advice
Learn from those in your circle who have already experienced budget planning for retirement. Prepare questions ahead of time if it helps, and consider talking with them about costs they hadn’t expected and learn from their experience as well.
Consolidate your accounts
Do you have a clear picture of your financial situation? It can be hard to see the big picture if your investments are spread out between various financial institutions. Consolidating your investments or keeping track of them in one place can help you get a bird’s-eye view of your big financial picture. Looking into your current investments can also be a great opportunity to assess any extra costs that could be adding up, like administrative fees or interest fees for multiple accounts.
Use a financial tool to consider consolidating
Budgeting tools can provide a bird’s-eye view of your current financial situation and let you see all of your money in one place. Try an app like Mint for personalized insights, custom budgets and income tracking, or MyAdvisor for interactive planning tools and unlimited advice to help you reach your retirement goals.
Consider tax-free transfers
Did you know that you can transfer funds between Registered Retirement Savings Plans (RRSP) tax-free? You can also move money between Tax-Free Savings Accounts (TFSAs) tax-free. Consider this if you’re thinking of consolidating your accounts.
Master the art of saving
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A good saving system can provide a sense of control, clarity, and confidence when it comes to your finances. Savings plans are personal and should be made with your individual goals, lifestyle expectations, and personality type in mind. Some people feel comfortable knowing they have a solid budget in mind, while other people can only retire peacefully knowing they have an excess of savings in case of unexpected life events. Consider your savings options in combination with your own vision for how you’d like your retirement to look.
Choose a plan you can keep. It’s great to be ambitious with your savings, but make sure you’re choosing a plan you’ll be able to stick to.
Pay yourself first, and prioritize high-interest debts. This doesn’t mean you shouldn’t also save if you have some debt, but in general, you’ll want to pay off higher-interest debts first and begin by paying yourself to cover your essential costs.
Maximize your RRSP deposits. Use your RRSP contributions to help lower your annual income tax costs.
Set up automatic investing. By setting up your accounts so that you’re automatically contributing to savings accounts, you’ll be creating a no-hassle saving habit that adds to your savings every month. Automatic contributions add up in the same way the cost of a daily coffee from your favourite coffee spot does; before you know it, the small amounts have added up to something substantial.
Get professional advice
Talking to a financial planner is a great way to formulate a personal plan for your retirement that suits your own goals and needs. There’s a difference between reading about a health concern online and seeing a doctor. Your financial future is similar––a financial advisor will be able to offer you tools to save, plan, budget, and assess your financial needs for retirement. But beyond saving money, financial planning also builds into your priorities, legacy, and practices like smart borrowing and tax-saving strategies.
Think holistically about your vision for retirement
Financial planning benefits from a personal vision, goal-setting, and a healthy dose of creativity. Take some time to dream about your retirement, no matter how far in the future it may be. Do you dream of taking a special trip or giving back to your community? What would you like to leave your children or grandchildren? The administrative details of a financial plan are imperative, but a retirement plan is only effective if it matches the future you have in mind. By taking some time to think about the big picture, you’ll be able to present a financial planner with a clear picture of where you’d like to be. Once that vision is set, it’s much easier to build a pathway that leads there together.
Boomerang can help you plan for a comfortable retirement
At Boomerang, we’re all about connection. Our interactive, engaged online community can help you adjust to the realities of retirement. Our weekly virtual workshops and activities can connect you to other Canadians who are looking to get inspired for their next great chapter. Try these classes to get started:
Live your bucket list and learn about what others are dreaming about for their retirement.
Unwind and reset with a restorative yoga class for any skill level.
Learn about how to bank digitally & safely from home
Joining Boomerang is free and will connect you with a group of Canadians who are curious to try new things and excited at the possibilities that Boomerang offers.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.