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Strategies for Any Age
Tips for each life stage.
Retirement planning can vary depending on when you start and what stage of life you are currently in. We’ve listed some things to think about during each of these life stages. Click a link for information.
Did you know?
Even though Canadians are contributing approximately 30 billion dollars1 per year into their RSPs, there is still approximately 500 billion dollars2 in unused RSP contribution room. In recent years, only 30%3 of all tax payers eligible to contribute to their RSPs actually made an RSP contribution.
This data reveals that there is considerable opportunity for Canadians to invest more money towards their retirement, particularly in registered accounts. Other reasons why Canadians should continue to focus on financial planning for retirement include:
- CPP may not be able to provide you with an adequate
amount to fund your retirement
- The federal government's social safety net is in
question
- Baby boomers are caring for aging parents, as well as
their own children. They’re also concerned for their own long-term health care
- Early retirement is more common and retirement can
last 20 to 30 years, due to longer life expectancies
- The next generation of retirement is being defined
differently, with a different set of responsibilities and possibilities, such
as:
- Returning to school
- Traveling or living abroad
- Starting a small business
- Caring for an aging parent
- Financing long-term health care costs
Keep in mind that your own retirement plan should be customized to your own needs and individual risk profile. It’s a good strategy for everyone, regardless of age, to talk to an financial planner.
20's – Getting Started
At this life stage, you may be:
- Starting an investment plan
- Setting up an RSP
- Starting your first full-time job
- Starting a family
- Considering buying a car or first home
- Paying off school loans
Strategies to consider:
- Develop an annual savings strategy and set investment
goals
- Develop a strategy for managing and paying down your
debt
- Invest early so that money has more time to grow (the
money in an RSP grows tax-free)
- Invest regularly through a Continuous Savings Plan
(CSP) and benefit from dollar-cost averaging, compounding, and cash flow
control
- If you are considering purchasing your first home,
you can withdraw money from your RSP to use towards the purchase of your home
under the Home Buyers’ Plan
- Consider low risk or principal protected investments if saving for significant purchases like your first home
Things you can do:
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30's – Juggling priorities
At this life stage, you may be:
- Raising a family
- Paying down a mortgage
- Thinking of purchasing a second car or property
- Considering home renovations
Strategies to consider:
- Revisit and update your overall financial plan
- Contribute regularly - even $50 a month can make a
difference
- Invest earlier so your money has more time to grow
(the money in an RSP grows tax-free)
- Remember there are tax advantages to investing in an
RSP. Each dollar contributed to an RSP (up to your contribution limit) is
deductible from your taxable income
- If you are paying down a mortgage, contribute to your
RSP and then use the tax refund to pay down the mortgage
- Create a nest egg for your children’s post-secondary education – invest in an RESP. Under certain conditions, the tax-deferred growth can be transferred to your RSP if your child does not go to school (depending on availability of RSP contribution room)
If you are changing jobs:
- You may have a pension with your old company and the
choice of whether to leave it with the company or move it to a locked-in plan
- By moving it to a locked-in RSP, you will have
control over your investment options
- You may also receive a pension adjustment reversal, which will restore previously used contribution room for your RSP
Things you can do:
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40's – Peak earning years
At this life stage, you may be:
- Thinking more about your retirement
- Paying down your debt
- Creating more disposable income as your mortgage is
paid off
- Planning for children’s future education expenses
Strategies to consider:
- Revise and update your overall financial plan
- Use up all of your annual RSP contribution room
- Use up any carry-forward RSP contribution room you
may have available. You can borrow to do this – and if you receive a tax
refund, you can use it to pay down the loan
- Consider a spousal RSP which provides the opportunity
for future income splitting in retirement. This is an important tax planning
strategy if one partner expects to have a higher income in retirement than the
other
- If you have used up your RSP contribution room,
consider investing outside of your RSP in tax-efficient investments
- Consider the benefits of leveraged investing – an
investment loan has several advantages such as tax deductible interest
payments which can reduce the real, after-tax cost of the loan
- If you are self-employed...
- Consider claiming income to create RSP contribution
room
- Remember, it’s important to fund your own
retirement plan since you likely do not have a company pension plan to rely
on
- Include a plan to save for your child’s post-secondary education
Things you can do:
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50's – Focusing in
At this
life stage, you may be:
- Shifting from a long-term to a mid-term focus
- Strengthening your retirement savings
- Considering early retirement or working less
- Considering starting your own business
- Planning extended travel and vacation time
Strategies to consider:
- Use up any carry-forward RSP contribution room
- Review and update your overall financial plan:
- Ensure you’re on target to reach your financial
savings goals
- Generally, 60% to 80% of your current gross income is ideal for maintaining the same level of comfort during retirement
- Do a retirement budget to help determine what you
still need to save to meet your goals (remember to include all sources of
retirement income, such as pensions, CPP, etc.)
- Ask yourself questions to help you plan. What does
retirement mean to you? Do you plan to start your own business? Do you want to
travel?
- Assess if there have been any changes to your risk
profile and rebalance your portfolio with your financial planner where
necessary
- Tax-efficient investing remains key, particularly
when you have no contribution room available
- Start thinking about when you want to start drawing
down on your government benefits (e.g. CPP). In some cases, it’s advantageous
to take a reduced benefit early and let your RSP continue to grow tax deferred
until you have to convert it at age 71
- If you retire early and want to go to school, you can use money from your RSP to fund your education through the Federal Government's Lifelong Learning Plan
Things you can do:
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60's+ – Retirement
At this stage, you may be:
- Thinking about retiring early
-
Approaching your company's age for retirement
- Planning a transition from full-time employment such
as:
- Part-time employment
- Self-employment/starting a business
- Extended travel
- Returning to school
Strategies to consider:
- Review and update your overall financial plan
- Refine your retirement income plan to fit your
anticipated cash flow needs. Review and adjust your retirement budget
- Ensure your retirement plan meets the requirements of
maturing your RSPs before the end of the year you turn age 71.
- Consider a reverse mortgage such as a Canadian Home
Income Plan (CHIP) if you have built up substantial equity in your home to
supplement your income
- Help your grandchildren save for their post-secondary
education by contributing to their Registered Education Savings Plan
- Review and update your estate plans including your
power of attorney and beneficiaries
- Don't forget that minimizing taxes on retirement income is important
Things you can do:
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