02 December, 2020 Retirement

Retirement Planning

Everyone has heard about planning for retirement, which is good because it’s one of the most important things you can do.


After all, retirement is a major life stage and many people worry about having enough money to last. Nobody wants to run out of money. Since the cost of living tends to increase steadily over the years – with the occasional large spike if the rate of inflation rises sharply – you need to ensure your savings can grow and keep pace with your costs.


Retirement income sources

That’s why people turn to savings vehicles like the Registered Retirement Savings Plan (RRSP) and, in more recent years, the Tax-Free Savings Account (TFSA). Both the RRSP and TFSA allow you to save for retirement in a tax-efficient manner to help you grow your wealth over the long term.


Company pension plans are also a valuable source of retirement income, but fewer companies offer such plans now as market and economic conditions become more challenging. In addition, pension plans are increasingly being structured as defined contribution (DC) plans rather than defined benefit (DB) plans. This trend is significant because DC plan participants (i.e., employees) must make their own investment decisions and are responsible for generating cash flow. On the other hand, the onus for DB plans is on the plan sponsor (i.e., the employer) to invest the funds and guarantee a specified income stream.


Benefits of retirement planning

However, it isn’t all bad news. A recent Canadian Financial Capability Survey* revealed that roughly seven out of 10 non-retired Canadians are making financial preparations for retirement. More Canadians seem to be grasping this notion, as 47% claim to know how much they should save to maintain their standard of living in retirement. Five years earlier, the same survey showed that only 37% could make that claim.


The numbers become more encouraging when Canadians have a plan to save for retirement. About 71% of these people believe their savings are on target to provide their desired standard of living when retired, whereas a mere 32% who have no retirement plan exhibit that same confidence. People without a retirement plan tend to rely on Canada (or Quebec) Pension Plan and Old Age Security, but these relatively modest public pension benefits are better suited as complements to other retirement income sources and not primary sources.


Three common tips for retirement planning

  1. Start saving early and contribute to retirement-related plans regularly
  2. Make important decisions regarding your long-term and short-term goals (see below), and then adhere to a financial plan that reasonably balances these goals. For example, you may choose a TFSA to save for short-term goals, while mutual funds and securities are often suitable for long-term growth, whether inside your RRSP or in non-registered accounts
  3. Be aware of how significant life changes (e.g., job loss, health issues, having children, death of a spouse) may impact your financial situation and, ultimately, your retirement plan

Focus on the short term as well


While it’s important to meet long-term goals like retirement, addressing shorter-term goals is another key part of saving and budgeting within a financial plan. The aforementioned survey showed that roughly 66% of Canadians are planning a major purchase or expenditure in the next three years. These expenses include purchasing a principal residence (11%), making home improvements or repairs (17%), taking a vacation (14%) or buying a vehicle (13%). It’s also sensible to create an emergency fund to cover your expenses for at least three months, in case you lose your job or experience some other sharp decline in cash flow.

Contact our office if you’d like to discuss retirement planning and how to set goals effectively.


* Source for all statistics referenced in this article: 2019 Canadian Financial Capability Survey.