Kicking Retirement Savings into High Gear
By Carla Hindman, Director of Financial Education, Visa Canada
As we welcome a brand New Year there's no better time than right now to start planning and saving for your retirement. Today more than half of Canadians admit to not feeling financially prepared for retirement, and only one third of Canadians actually have a plan in place to meet their retirement needs.
Those in their twenties or thirties have several decades for their savings to grow, but if you're already in your forties or fifties, and don't have a plan in place, you'll need to save more aggressively to make up for lost time.
Here are a few tips to kick your retirement savings efforts into high gear this year:
Maximize your savings. There are several financial tools available to help maximize your current savings. Everything from Tax Free Savings Accounts (TFSA) and GICs, to Mutual Funds and stocks are all part of the assortment of products available today.
In addition to these options, consider opening a Registered Retirement Savings Plan (RRSP) if you haven't done so already. An RRSP is a retirement savings program, registered by the Canada Revenue Agency, which commonly allows your contributions to grow tax free as long as the funds remain in the plan. According to Statistics Canada, in 2012 just 23.7 per cent of Canadian tax filers contributed to an RRSP.
One way to increase your RRSP is to determine whether other investments such as Canada Savings Bonds, Guaranteed Investment Certificates (GIC's) and publically traded stocks and bonds, are eligible for transfer into RRSP in lieu of cash. You may need to check with a financial professional to determine whether it would be beneficial to transfer such assets, from both a retirement planning and a taxation standpoint. For more information on RRSPs, visit the Canada Revenue Agency website.
Some employers offer corporate-matching on RRSP contributions, which can add hundreds or even thousands of free dollars to your account every year. Take advantage of these matching contributions to build up your current savings. If finding more money to contribute is a problem, make a pledge to put your next pay increase directly into your plan.
Take Financial Inventory. Many people don't know their net worth, or how much money they'll need at retirement- some experts say at least 60-80 per cent of current income is necessary to maintain your current lifestyle after you stop working. In order to determine how much you'll need throughout your retirement years, start by reviewing your Canadian Pension Plan (CPP), RRSPs, savings accounts and assets. Once you have completed this inventory, enter these amounts into an online retirement calculator to roughly estimate how much money you'll need to retire comfortably. Practical Money Skills offers a retirement calculator to help you start thinking about your retirement financial well-being.
Check out the Financial Consumer Agency of Canada (FCAC)'s website for a list of possible retirement income sources that may be available to you.
Consider downsizing. Once your kids are all grown up and moved out, consider downsizing to a smaller, less expensive home. This will allow you to invest some of your current home's equity for retirement, as well as pay less for utilities, property taxes, home repairs and other expenses.
Delay retirement. In this day and age people typically live much longer than their parents so their retirement savings will need to last longer. By delaying retirement a few years or at least working part time, your savings can grow considerably before you need them. Plus, the longer you delay tapping into your Canada Pension Plan benefits, the larger your monthly payout.
One last suggestion: Once you've settled on what you think will be a sufficient retirement budget, try living on it for a few months first before retiring to make sure it actually works.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.