May 24, 2023

It is never too early to make preparations for your golden years. Here, we consider five important financial aspects that can help ensure a comfortable retirement.

1. Envisioning your post-work years

To plan your retirement successfully, you need to know what you want retirement to look like. Two aspects will frame your retirement vision: the age at which you want to retire and your spending habits during that period.

Do you want to retire early or work past the traditional retirement age? Will you stop working entirely or retain some part-time employment? Do you plan to live modestly, downsize and stay put, or do you look forward to travelling the world and taking up new hobbies?

Your future lifestyle and how long you expect your retirement to last will dictate how much you should save to fund your post-work years.

2. How much will you need?

Knowing what your retirement will look like is an excellent first step in estimating the size of the savings pot needed to fund your golden years. Remember, too, many people’s retirement sees them spending less than when they were working: no more commuting costs, mortgage payments or retirement savings!

A second step is often to invoke one of the ‘rules of thumb’ that purport to guide retirees towards a figure sufficient to fund their golden years. For example,  the 4% rule says a new retiree’s investment portfolio can safely sustain an initial withdrawal of 4%, followed by inflation-adjusted withdrawals of the same amount each year. Instead, we advise that a  thoughtful investment plan will do much more to help you understand what is reasonably needed to provide for your retirement spending expectations.  

Part of that includes deciding when to take your Canada Pension Plan (CPP) or Quebec Pension Plan (QPP). You can start anytime between ages 60-70, but for each month before you turn 65, your CPP benefit decreases by 0.6% and increases by 0.7% for each month you wait after 65. From an overall dollar amount received perspective, the math says that if you live past 74, delaying taking CPP until you turn 65 results in receiving more than if you started taking it earlier. You would also get more by deferring the benefit until 70 only if you live past 82. But there are often other considerations in each person’s unique situation that will affect the decision—and these can be incorporated into your investment plan.

3. Do not pay more tax than necessary

Make full use of the available tax-sheltered accounts—Registered Retirement Savings Plan (RRSP), Group Registered Retirement Savings Plan, Tax-Free Savings Account (TFSA)—that allow you to reduce or delay your taxes on savings you can use for your retirement. If you can, maximize your contribution room each year.

Plan how best to withdraw your savings. Taking out money from your RRSP will be taxable at your marginal rate because your pre-tax income was used to make RRSP contributions, and you got a tax deduction at the time. The higher your marginal tax rate, the smaller the proportion of your withdrawal that will end up in your pocket. Conversely, TFSA withdrawals are tax-free because contributions were made with your already-taxed income.

4. Make an estate plan

After working hard to achieve your retirement goals, you should also make sure to protect your legacy. An estate plan will outline how your assets are distributed in the event of your death. The two main tools to achieve this are a will and a power of attorney.

A will documents who will inherit your money and property. It will also name one or more executors who will oversee the administration of your estate. It is an important document for intergenerational wealth transfer and looking after your family and other beneficiaries. A power of attorney gives a trusted person the authority to make decisions on your behalf—such as about your finances, property or healthcare—while you are still alive, should you be unable to make the decisions yourself.

5. Seek expert advice

Planning for retirement is one of the most important and potentially rewarding activities you can undertake. However, it is also one of the most complex, and taking professional advice is a sensible option. For example, speak to a legal expert about drawing up a will or power of attorney. We can help with considered investment planning to assist you in reaching your long-term financial goals. Our broad, pension-calibre investment platform and our wealth of thinking can enable us to steward your wealth with confidence.

Our Wealth Advisors across the country are always ready to answer your questions. Whether you are a valued client or interested in discovering more about the services CC&L Private Capital offers, please feel free to call or email us anytime.

This post is for information only and not intended as investment advice. The views expressed are subject to change at any time.