Retirement Planning - How to Prepare for Retirement

What is retirement planning?

Retirement planning involves firstly determining how and where you want to live when you retire, and especially determining how much money you need to live on for your life expectancy. You need to figure out the actions and decisions needed to reach these goals.  This includes estimating living expenses, implementing a personal savings program, and managing the assets you have.

Many of us cannot afford a financial planner to help us manage our personal finance. Thankfully, the Government of Canada provides many resources and tax considerations to help you with claiming tax deductions for your retirement planning.

What is the process of retirement planning?

The tax strategies you use while working will change significantly once you retire. Both are important, but how you deal with them is very different.

Upon retirement, the more control you have over your income sources, the more likely you will be able to reduce your taxes. If planned properly, you’ll want to have three lots or sources of income in retirement from a tax perspective:

  • Tax-Deferred status refers to investment earnings that accumulate tax-free until the investor takes constructive receipt of the gains.
  • Tax-Free refers to certain types of goods and financial securities that are not taxed. It also refers to earnings that are not taxed.
  • Tax-Managed funds are specifically designed to reduce taxes on your investments. They do this in a number of ways, whether by avoiding dividend-paying stocks, selling some stocks at a loss to offset other gains, or holding on to stocks rather than selling.

Do you have your retirement accounts set up? If not, it is time to start saving and start your retirement planning today.

Why is retirement planning important?

When it comes to retirement planning, there are literally thousands of considerations that can impact your ability to maintain financial protection. Hopefully, you’ll only retire once. But this also means you lack the experience necessary to recognize critical questions and answers that can add to a successful retirement.

Financial stress is associated with physical conditions such as heart disease, diabetes, migraine headaches, and poor sleep. Not only that, but money issues can also cause depression and anxiety, depriving you of peace of mind to enjoy your life today and the future.

Taking steps today to get your retirement planning on the right path is an important step in your overall financial wellness—which can only be good for your physical and emotional health.

Unfortunately, retirement is a period when taxes can damage a major part of your income and savings if you aren’t careful. Avoiding those taxes is a major reason why retirement planning is important.

Retirement planning goals

Having a retirement age of 55 is great when it’s part of your plan. Unfortunately, most retirees aren’t retired by choice. If you have to leave work before your expected retirement age, you’ll be in a much better position if your retirement plan is already in place. Perhaps you did not reach your financial goals, but having money set aside for retirement gives you more options and time to adjust your plans if you need to retire early. A comprehensive retirement plan includes saving for medical costs and potential long-term care costs. When you know your expenses are covered, you won’t have to rely on your family to fill the gap. A good retirement plan not only keeps you from being a burden to your kids, it gives you the resources to be an amazing grandparent. 

How much retirement income do I need?

Most financial advisors suggest that you will need roughly 70 to 80 percent of your current salary to maintain a retirement lifestyle similar to one you are enjoying currently. That means if during your professional career you made an annual income of $100,000 each year, you should expect to roughly have $70,000 to $80,000 in retirement income per year.