Picture yourself on a warm, sandy beach. Waves are calmly lapping the seashore and you’re basking under the sun. Does this sound like your retirement paradise? Once nearly guaranteed, a comfortable retirement has now started slipping out of the reach of many aspiring retirees. Keep reading for a few things to consider that will help you transition into your golden years as smoothly as possible.
What do you want your retirement to look like?
The opportunity to kick back and relax during your golden years is getting increasingly difficult to enjoy. For many, this is attributable to an uncertain financial future. Even for those who call it quits later in their career, having a steady pension is becoming increasing rare. With this in mind, it’s important to envision, while you’re still working, what your retirement plans are. Think about what you want to be doing and where you want to live when you leave the workforce.
With the change of pace, you may want to consider moving someplace quieter. A sunny climate is often a popular choice. However, make sure you weigh other factors like housing affordability, crime rate and the availability of services like health care.
RRSPs
RRSPs, or Registered Retirement Savings Plans, are a dependable way to accumulate funds for retirement. Like an RESP, funds in an RRSP are not taxed while they remain untouched. The sooner you start, the more compounded interest you’ll earn. Thinking of retirement may seem impossible in your 20s, when you’re trying to minimize debt and pay your bills. However, before you know it, you’ll likely face major expenses such as buying a house and starting a family. Therefore, it’s best to get into the habit of saving even just a little bit. For 2019, you can contribute up to 18% of your income that you listed on last year’s tax return, up to $26,500.
When should you start drawing on pension benefits?
Many people retire at the age of 65. However, did you know that you can start receiving CPP benefits between 60 and 70 years of age? As for OAS, you can start these payments when you’re between the ages of 65 and 70. For both, you’ll either receive more over a shorter period, or smaller amounts spread out over a longer period. No matter age you choose to retire at, there are various factors to consider.
If you’re in poor health, it may make sense to begin your benefits as early as possible. Do you have a lower life expectancy due to a serious, chronic condition? In this case, it’s better to start your pension payments early. However, if you receive CPP Disability Benefits, you’re better off waiting until you’re 65 to start your regular CPP benefits. Are you on a low income or were you previously unemployed for a lengthy period? Then it may also make sense to start drawing benefits early.
On the other hand, if you’re in good health, then you would benefit from delaying your pensions if possible. This will maximize your overall payout, as your benefit amount will increase based on average Canadian wages. Once you begin the payments, they’re adjusted for inflation according to the Consumer Price Index. Since wages generally rise slightly faster than inflation, this would be a small incentive to delay your pensions. Click here to learn more about government pensions and the pros and cons of starting early or delaying.
Despite common stereotypes, retirement does not mean giving up your entire life. A little planning ahead will allow you to get the most out of your retirement without worrying about finances.