Retirement planning isn't just about saving a certain amount of money. It's about creating a plan for how you'll support yourself, manage your income, protect your assets and achieve the lifestyle you want after you stop working. Whether retirement is decades away or just around the corner, the right time to review your plan is now. Your retirement plan may include savings and investments, employer pensions, government benefits, your home, insurance and other sources of income. Your needs will depend on your age, income, expenses, health, family circumstances and retirement goals.
Start with your retirement goals
Before deciding how much you need to save, think about what you want retirement to look like.
Consider:
- When you would like to retire
- Where you want to live
- Your expected monthly expenses
- Travel and leisure plans
- Healthcare and other potential costs
- Whether you plan to continue working
- Financial support you may provide to family members
- Whether you want to leave an inheritance or charitable gift
Your retirement income needs will depend on the lifestyle you want to maintain.
Estimate how much you'll need
A retirement budget can help you understand how much income you'll need once you stop working. Start with your current expenses and consider which costs may increase, decrease or disappear in retirement. For example, you may spend less on commuting and work-related expenses but more on travel, hobbies or healthcare. Don't forget to account for inflation. The amount that provides a comfortable lifestyle today may not provide the same purchasing power decades from now. YNCU's retirement calculator can help you estimate your future savings and retirement income needs.
Understand your sources of retirement income
Retirement income can come from several sources.
Depending on your circumstances, these may include:
- Canada Pension Plan (CPP)
- Old Age Security (OAS)
- Employer pensions
- RRSPs and RRIFs
- TFSAs
- Non-registered investments
- Savings
- Rental or business income
- Other sources of income
Understanding when and how you can access each source can help you build a more effective retirement-income strategy.
Understand CPP and OAS
CPP and OAS are important components of retirement income for many Canadians, but they work differently. Your CPP retirement pension is based on factors including your contributions and the age at which you begin receiving it. OAS is a federal benefit with its own eligibility requirements and rules. The timing of government benefits can affect your overall retirement-income strategy, so it's worth understanding your options rather than automatically starting every benefit as soon as you're eligible. For current eligibility, payment amounts and rules, refer to the Government of Canada's official information before making decisions.
Make the most of your RRSP
An RRSP can help you save for retirement while potentially reducing your taxable income through deductible contributions, subject to applicable rules and limits. During your working years, contributions and investment growth can help build retirement savings. Eventually, an RRSP must be converted or otherwise dealt with according to the applicable rules, including the age-based deadline for converting an RRSP to a retirement income option. YNCU's current RRSP material notes that an RRSP must be converted to a retirement income option, such as an RRIF or annuity, by the end of the year in which the holder turns 71.
Understand RRIFs and retirement income
An RRIF is one way to turn retirement savings into an income stream. Unlike an RRSP, where you're generally contributing and accumulating savings, a RRIF is designed for withdrawing retirement income. Withdrawals are generally taxable income, subject to applicable rules. The amount you can withdraw can depend on factors such as your age and the value of the RRIF. A retirement-income strategy should consider how RRIF withdrawals interact with your other income sources and your overall tax situation.
Review your pension
If you have an employer-sponsored pension, understand:
- How much income it may provide
- When you can begin receiving it
- Whether it is indexed
- What options are available when you retire
- What happens to the pension after your death
- What benefits may be available to a spouse or survivor
If you have questions about your pension, speak with your plan administrator or a qualified financial professional.
Don't overlook your TFSA
A TFSA can also play an important role in retirement planning. Unlike an RRSP, contributions to a TFSA are not generally deductible from income, but investment income and withdrawals are generally tax-free, subject to the applicable rules. TFSA withdrawals can also provide flexibility when managing retirement income. The right balance between RRSPs, TFSAs and other accounts depends on your circumstances.
Consider healthcare and insurance
Retirement doesn't eliminate the need to think about financial protection. Healthcare expenses, long-term care and other unexpected costs can affect your retirement plan. Review your existing insurance and consider whether your coverage still meets your needs. Your insurance needs may change as your income, assets and family circumstances change.
Think about your home
For many Canadians, their home represents a significant portion of their wealth.
You may plan to:
- Stay in your current home
- Downsize
- Move to a less expensive area
- Sell your home and rent
- Use home equity as part of your retirement strategy
Home equity can be an important consideration, but products such as reverse mortgages have specific terms, costs and eligibility requirements. If you're considering using home equity to fund retirement, understand the implications before making a decision.
Plan for the unexpected
A good retirement plan should account for more than your ideal scenario.
Consider what would happen if:
- You retired earlier than expected
- Your investments declined
- Your partner died
- You experienced a major health expense
- You needed long-term care
- Inflation was higher than expected
- You lived longer than anticipated
Building some flexibility into your plan can help you adapt when circumstances change.
Consider your estate plan
Retirement planning and estate planning are closely connected. Review your will, powers of attorney and beneficiary designations as part of your overall financial plan. This is particularly important when you have registered accounts, life insurance, significant investments, a business or a blended family. See our Estate planning guide for more information.
Create a retirement income plan
Saving for retirement is only one part of retirement planning. Eventually, you'll need to decide how to turn your accumulated assets into sustainable income.
That means considering:
- When to start government benefits
- When to draw from registered accounts
- How much to withdraw
- Which investments to use
- How much cash to keep available
- How taxes may affect your income
- How to manage market fluctuations
There isn't one strategy that works for everyone.
Retirement planning checklist
Before you retire, consider whether you've:
- ☐ Defined your retirement goals
- ☐ Created a retirement budget
- ☐ Estimated your retirement income
- ☐ Reviewed CPP and OAS
- ☐ Reviewed employer pension benefits
- ☐ Reviewed your RRSP and RRIF strategy
- ☐ Considered your TFSA
- ☐ Reviewed your insurance
- ☐ Considered healthcare and long-term care costs
- ☐ Reviewed your estate plan
- ☐ Created an income strategy
- ☐ Built a plan for unexpected expenses
It's never too early — or too late — to review your plan
Retirement planning isn't a one-time exercise. Your income, expenses, investments, family circumstances and goals will change throughout your life. Review your plan regularly and make adjustments when your circumstances change. If you're approaching retirement, a financial professional can help you bring the different pieces together and create a strategy based on your circumstances.
The goal isn't simply to retire. It's to create a retirement you can afford and enjoy.
This article is for general educational purposes only and does not constitute financial, investment, tax, insurance, legal or retirement-planning advice. Government program rules, tax legislation and financial-product terms can change. Consult qualified professionals for advice specific to your circumstances.
