Getting ready to retire
Make your golden years greener.
With retirement getting closer on your horizon, it's time to take a hard look at your assets and determine if you have enough money set aside to support 20 or even 30 years of the retirement lifestyle you want. Here are three questions you should ask yourself.
1. What will your retirement look like?
Your expenses have likely declined – your children may have graduated or be nearing completion of their studies, your mortgage may be winding down, and other debts may be paid off. Yet your income is likely still at peak levels. This is the ideal time to maximize your retirement contributions. Meanwhile, you need to think about what income you're going to need in the years ahead.
When would you like to retire? Will you leave the work force and start your own business? Work part-time? Spend quality time with your grandchildren? Travel? At what age do you want start collecting your pension, if you have one? How you answer these questions can greatly affect how you structure and act on your financial plan.
Add it up. Look at the retirement cash flow you can count on, such as income from company and government pensions, and consider your anticipated savings in both your Registered Retirement Savings Plan (RRSP) and your non-registered investments.
2. What should your portfolio look like?
Review your mix of assets to make sure there is sufficient exposure to growth. If you're very close to retirement, you may want to begin rebalancing – shifting the emphasis in your RRSP from long-term growth to more conservative investments. This could involve:
- Consolidating. If you haven't already done so, consider consolidating any multiple RRSPs you may have into a single plan, which will simplify things when you are required to convert to an income-generating vehicle at age 71.
- Topping up. If you're not quite where you want to be in relation to your savings target, a few timely adjustments will help you get your RRSP back on track. If you haven't been maximizing contributions, take action now to boost current and future contributions. Use the years remaining before retirement to catch up on unused contribution room.
- Tapping in. Explore your savings options – if you can't find the extra income to add to your RRSP now, you may want to consider taking out an RRSP loan or line of credit to help beef up your portfolio and maximize on the tax savings provided by the RRSP while you are still earning regular income.
- Boosting growth. Depending on your risk tolerance and time horizon (that is, the number of years left before retirement), you may also want to consider increasing the level of growth-oriented equities in your plan, to boost potential performance.
- Spousal equalization. This is also the time to make sure you're taking full advantage of spousal RRSPs. If you and your spouse expect to have very different incomes in retirement, consider starting or adding to a spousal RRSP to help equalize your incomes and reduce taxes after you retire.
3. What's your plan for retirement income?
Annuities, company pension plans, your Canada Pension Plan, Old Age Security (OAS), unregistered investments, other savings, and wages from part-time employment will all contribute to your retirement income. At age 71, you must transfer your RRSPs into an income-generating vehicle such as a Registered Retirement Income Fund (RRIF). As you get closer to retirement, talk to your investment advisor to plan exactly how much you can expect from these income sources.
You should also look at your insurance needs. Failing health requiring long-term care is often the biggest single drain on your retirement funds. Long-term care insurance† is well worth considering. You should also look at establishing an estate plan or reviewing the one you have.
Right now, you should take the time to review your current portfolio to ensure your savings plan is on track and will see you through retirement. Your financial advisor can help you create a retirement investment plan to help you meet your goals.