To save for retirement, plan in the present
When in doubt, seek one-on-one advice with a financial expert
It’s not easy to balance one’s current financial needs with saving for retirement. How do you know how much you’ll need? What are the best ways to invest? One of the most important steps you can take is to envision the lifestyle you want in retirement.
Do you plan to do a lot of travelling? Do you want to spend time with your kids and grandkids out of the province? Are you a homebody or someone who loves to shop and eat out? Where do you want to live?
Once you decide the things you want to do when you retire, you’ll need to figure out how much money you require to put away to live that lifestyle.
Start with your current expenses, factor in a cost-of-living increase of about 3 per cent a year and tally it up to age 95. That can be your general savings goal.
Next, start saving. If your company has a pension or group retirement saving plan (RSP), you’ll want to take full advantage.
This is especially true if your employer will top up or even match your contribution, making it essentially “free money” for the employee.
Your employer may choose a suite of investments within this plan, but they often give the employee the opportunity to make selections within the list.
When you’ve selected your investments within your group RSP, it’s important to review them regularly.
It’s the responsibility of the employee to keep an eye on these investments, just like you would any other asset.
It can also be helpful to work with a financial adviser to determine how much more you need to invest to match your retirement goals.
Where should you invest your money?
Take full advantage of your allowable tax-free savings account (TFSA) and registered retirement savings plans (RRSP) contributions.
A TFSA lets you invest and enjoy tax-free growth, and you can withdraw the funds at any time.
You’re allowed to put up to $5,500 a year into this account yearly.
If your company has a pension or group retirement savings plan, you’ll want to take full advantage
RRSPs, on the other hand, let you recoup some of your tax dollars each year you invest in the RSP. Unlike the TFSA, your maximum annual RSP contribution is related to your income.
With an RSP, you will have to pay the taxes when you withdraw the money, but if you’re using it for retirement savings, you will likely be in a lower tax bracket at that time, allowing for significant savings.
In the meantime, investing the money within the RSP will help your money grow.
So how do you decide which of these vehicles to use for your investment dollars? A lot depends on your income.
The higher your earnings, the more sense it makes to use the RSP contribution.
Also, younger investors often like to take advantage of the TFSA so they can take the money out for purchases as they need to and not have to pay tax on the income earned.
Of course, retirement isn’t the only reason you save money.
Home ownership and education are other long-terms goals for saving, so portfolios that help you save, invest and work toward a variety of goals is key.
You also have to be prepared for the unexpected — illness or the loss of a job are just a couple of examples of setbacks that may affect your savings plans.
Most experts suggest setting aside extra funds in case of emergencies. Be sure to have a plan in place for unforeseen circumstances.
A financial adviser can be invaluable when it comes to strategies for managing your savings and investments and helping you reach your goals.
The one-on-one advice of a financial expert can help you sort out your banking needs and financial planning to put you on a path for the future.