Family out for a walk in a forest

Have you thought about what retirement will look like for you? Maybe you dream of traveling and having adventures around the world. Or perhaps your ideal is a quiet life pursuing hobbies like gardening, reading or yoga. The first step in making any retirement plan is to have a vision for the kind of life you want to live in your golden years. 

Of course, no matter what retirement looks like in your dreams, the reality of the economy and your own personal finances might be keeping you up at night. But take heart – making and maintaining a plan today can help make for a fulfilling retirement tomorrow.

Regardless of your age or your financial situation, a plan can go a long way to helping you achieve your goals. Here’s what you should know and consider so you can get to work on planning and living the retirement you desire.

Calculate how much you’ll need

Money makes the world go around but it also makes your retirement work. The question often asked is: how much do you need to save in order to retire? You may have come across news stories saying that you’ll need $1 million or more, but the truth is there’s really no one-size-fits-all answer on how much is enough.

Most experts agree you’ll have to replace 60% to 70% of your working income in retirement to maintain your lifestyle, but that’s only a starting point. Depending on your goals, life expectancy, health, future spending habits, and any legacy you wish to leave, your own amount could be lower or much higher.

Give careful thought to the kind of life you expect or want to live when you’re retired, and then work out a budget and a plan for what you’ll need to fund that life. A financial advisor can help you with resources, ideas and strategies to get you going.

Start planning and saving early…or now

If you’re in your 20s or 30s, now is the best time to start planning and saving for retirement. While retirement may seem decades away (and it is), the fact that you have so much time ahead of you is your number one reason to start investing. When it comes to retirement savings, time is your greatest commodity. Thanks to the power of compounding interest, even small amounts saved away today – and regularly – can add up exponentially over time, providing a comfortable nest egg for the future.

Why compounding matters

The power of compounding interest means that, over time, small savings can produce big rewards. For example, if you were to contribute $250 each month to an RRSP beginning at age 20, by the time you're 65 you'll have nearly $375,000, based on an interest rate of 4%. However, start just 15 years later with the same contributions, and you'll end up with a little less than half that amount, or about $170,000.

If you’re passed your 30s and don’t have a retirement savings plan in place, remember this expression about planting trees: To enjoy it’s shade, the best time to plant a tree is 20 years ago; the second best time is today. The same principle holds true for retirement savings. Talk to an advisor to work on your plan and get strategies on how you can play catch-up on funding your retirement.

Budget to save for and live in retirement 

One of the biggest challenges people face is managing their money so that they can live for today and save for tomorrow. With inflation, high interest rates, soaring rents and real estate costs, the current economy can make it difficult to stretch your dollars to meet every demand and need. This is where budgeting is essential. In particular, you’ll need to think about:

  • a budget to build savings for retirement
  • the budget you’ll need to live once you are retired

Budget planning begins with setting goals – short term like a vacation or new phone; medium, such as a house or a child's education; and long term such as your retirement. Review yours and rank them in order of importance and cost. Goals can be flexible and change over time, but use this as your starting point.

Then, look at your current expenses and your income (at this stage, do not include variable income sources such as tax refunds, bonuses, or investment gains). Assess your fixed costs – rent or mortgage, utilities, transportation, insurance, etc. – and review variable monthly expenses, such as groceries, clothing, and entertainment. Your bank account and credit card information can help you with tracking regular expenses and spending habits. Use what’s left to fund your plan.

If you don't have enough left over after expenses are paid, review your expenses to see which ones you can trim. You may also need to reevaluate goals and spending habits. 

Retirement savings tip: Automate and make regular contributions

An easy way to build savings is to set up pre-authorized transfers into a savings account and include that amount in your regular budget. This way, the amount is not part of your discretionary budget and your retirement fund grows.

If you’re approaching or in retirement already, a detailed budget can help you manage your money so you retire comfortably and stay that way. Factor in your goals, but also make sure to have room for things like inflation and the cost of future healthcare. An advisor can help you figure it out, with greater detail and specifics. This way you’ll know if you’re on track and how to stay there.

Client speaking with an advisor in branch

Retirement and tax savings

When it comes to building retirement savings, Canadians have two highly effective tax-saving vehicles to consider: the Registered Retirement Savings Plan (RRSP) and the Tax Free Savings Account (TFSA).

As a tax-sheltered account, the RRSP offers the dual benefits of allowing you to save for retirement and save on your yearly tax bill. Deductible RRSP contributions can be used to reduce taxes – and those funds (including any tax refund) can in turn be used to invest in your retirement. Income earned in an RRSP is usually exempt from tax as long as the funds remain in the plan. You generally pay tax when you receive payments from the plan.

To benefit from RRSP tax-savings in a given year, there is an annual deadline to contribute (February 29, 2024 for the 2023 tax year). But tax-sheltered compound interest can make a dramatic difference, so it is advisable to make contributions on regular intervals that work for your life and budget – such as weekly, from each paycheque, or monthly.

TFSA investments are not tax-deductible but any earnings made in the account are exempt from taxation. You can also withdraw more readily from a TFSA if you need funds for purposes other than retirement, but with their tax-free growth potential, a TFSA can work beautifully with an RRSP to help you reach your goals.

Talk to an advisor to discuss the options that work best for you and learn more about the benefits and uses of both in this helpful article: A Taxing Decision: RRSP Or TFSA?

Work with a professional financial advisor

Planning for retirement can be complicated and challenging. Your retirement plan is personal and specific you – your goals, your vision, your finances, and more – but there are some shared fundamentals for almost everyone: start early, budget and prioritize, contribute regularly, have a plan, stay the course and work with an advisor.

You need not go at it alone. A professional financial advisor can help you with creating a retirement plan tailored to your needs. They’ll work with you to review your finances, your goals and explore plans and options with ideas and strategies on how to work towards your retirement with purpose and confidence.

BlueShore Financial, Financial Advisor, Mona Heidari

Mona Heidari

Financial Advisor

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The information contained in this article/video was written by BlueShore Financial or one of our expert financial writers and was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. It is provided as a general source of information and should not be considered personal financial advice.