Thinking about and planning for retirement for someone people is a daunting, and too-soon to be true task. For a young person just entering the workforce, it doesn’t make sense. For those who have been working for 10 years or more see their Canadian Pension Plan as their primary retirement fund. And for the rest us, it doesn’t even seem like an option yet.
Today everyone – young and old – are encouraged to start planning early, and are reminded not depend on your Canadian Pension Plan alone. Any good financial advisor will tell you: get a Registered Retirement Savings Plan (RRSP) and start saving immediately.
To date, only 30% of Quebecers have a pension plan and only 20% contribute to an RRSP.
So what? Well, in this day and age people are living well beyond 80, meaning one person alone could be retired for more than 20 years. This is why you have to start planning in your 20’s so that you can ensure you are financially stable when you finish working forever.
Now that I’ve got you thinking, let’s take a look at the planning…
First things first, what kind of retirement do you want?
Part of the planning process is asking yourself the right questions. You need to know what to expect before you can make goal! Here are some questions you should ask yourself:
1. What kind of retirement do you want?
2. What kind of lifestyle do you lead now?
3. How much money do you spend now, and what will be the cost of your lifestyle in 20 years?
4. Are you going to travel or is your retirement an opportunity for you to relax at home?
5. How much money are you going to need when you retire?
If you’re an active person, and want to use retirement as an opportunity to travel and visit different places, you have to start planning earlier and save more. Don’t forget as well that you can volunteer for a variety organizations in your community to keep busy too!
After you’ve answered the questions above, start to analyze your current resources such as your assets, income and investments. The next step is to compare your lifestyle today and the lifestyle you want to have when you retire. Use your current budget as primary resources to help you narrow down what type of savings sum you are going to need. Summarize all this information onto one sheet.
Once you’ve written it all down, bring your summary with you to see your financial advisor, and get some retirement advice to help you plan accordingly.
The RRSP: a simple and effective solution
As we said earlier, you can’t just depend on your Canadian Pension Plan or your Provincial Pension Plan – it’s not enough money! They are reliable in terms of making sure you receive the payments on time once requested, but because we are living longer and having fuller lives after retirement (i.e. traveling), and many Canadians are now finding that their pension plans aren’t enough. This is why you need to plan and save on your own.
One of the simplest ways to save and plan is by setting up an RRSP to place your money into each time you get paid. RRSP’s are tax deductible and considered an investment asset. There are three types of RRSP’s you can open and contribute to: individual, couple and group. The best part about RRSPs is they’re extremely adaptable, for example if you’re planning on selling or buying your house you can modify your RRSP to fit your current/future financial needs.
It’s true what they say: it’s never too early to plan for retirement. I know someone who’s been saving $25 a month since they got their first job at 14! Now imagine if we had all done that – we’d be retiring earlier than expected. For the rest of us who didn’t start saving at 14…it’s time to start.