Proper retirement planning is extremely essential in sustaining a comfortable lifestyle after retirement. If you are just starting out on your chosen career, you will probably be tempted to postpone making arrangements for your retirement. However, starting out early is the golden rule in retirement planning. It can be extremely challenging to decide on how much you need to save for your retirement. The most popular approach when calculating retirement savings is halving your current age and subsequently saving that percentage of your gross income. For example: if you are 40 years old, you save 20% of your gross income to go into your retirement savings. This approach however does not take some essential, additional factors. Let’s take a look at some of those factors below.
Your retirement goals
Your retirement goals and objectives should significantly impact on your spending habits, and they should essentially determine the amount you need to save. For instance, you should ask yourself the following questions:
- Do you intend to travel more frequently after retirement?
- Are you planning to retire earlier?
- Do you intend to work in retirement?
- Do you intend to move out of your current home, perhaps to a different community? For instance, if you are planning to move to a different province or outside of Canada, you may want to wish to consider how that will affect your social benefits, medical insurance and taxes.
- Will you carry debts into your retirement?
Your current spending versus the anticipated spending in retirement?
It is imperative to remember that your financial obligations are likely to change significantly after retirement. You should therefore determine the amount of pre-retirement income you will require in maintaining your desired standard of living. The amount will often vary from one individual to another as people have different levels of income, retirement goals and attitudes about money. For instance, if you have substantial debts like mortgages or consider downsizing your home, this could significantly impact on your retirement spending.
It is imperative to consider unexpected events when planning for retirement. This will serve to lessen their impact if and when they occur. You may even elect to set an emergency fund to cater for such occurrences. Such events include:
- Earlier than anticipated retirement due to professional, personal and health reasons
- Unexpected major expenses, including car maintenance and home repairs among others
- Health emergencies for yourself and your family
Most Canadians will often overlook the fact that they may require long term care during their retirement years. It crucial to plan for the possibility of your needing long term care as it can be very expensive. Ensure that you have an idea of how much it may cost you and plan accordingly. You should however realize that the provincial and territorial legislations will often govern the long-term care facilities.
Therefore, it is essential to contact your provincial or territorial government for detailed information on the potential costs of your long-term care as the costs may vary on the basis of where you eventually decide to settle. In addition, you may also want to purchase a critical illness or long-term care insurance coverage, which will assist you in covering part of the risk.
Canadians need to save more for retirement
A recent study revealed that majority of Canadians are saving only 4% of their disposable income. However, it is important to note that your pre-retirement expenses will often indicate the amount you will need to spend in retirement. Subsequent to reviewing your potential needs, you may employ the financial goal calculators that are available online to create a post-retirement plan.