Retirement is an important milestone in everyone’s life. It’s a time to relax, enjoy your hard-earned savings and discover new interests. But before you can relax and enjoy your golden years, there are a few key steps you need to take. If you’re planning to retire in Canada, here’s a handy guide on what to do just before you retire.
1. Review your defined benefit retirement plan
Indeed, a defined benefit pension plan, often considered the golden ticket to a comfortable retirement, is a fascinating topic worth delving deeper into. This is a foundation of financial security that is becoming increasingly rare in today’s volatile economic climate.
The beauty of it is in its simplicity: a predictable, guaranteed lifetime pension based on your earnings and length of service.
Now let’s talk about the numbers. One of the most important aspects of a defined benefit retirement plan is understanding how your expected monthly income is calculated. It’s not just about the years spent in the office. The formula usually includes final average salary, benefit factor (which can be a percentage or a fixed amount) and length of service. For example, 30 years of service multiplied by 2% would equal 60%. In the second step, this coefficient is multiplied by the average salary obtained over the best five years. This means that an average salary of $80,000 multiplied by 60% gives a lifetime pension of $48,000 per year! This is no small change, and understanding these calculations is crucial.
But what about those tempting lump sum payouts? It’s like winning the lottery, right? Well, not always. While the thought of getting a large sum of money at once may seem appealing, you should consider this decision carefully. A lump sum can push you into a higher tax bracket for the year, and without careful planning, the money could run out sooner than expected. Remember that a defined benefit annuity provides a steady stream of income that lasts as long as you do.
It is also necessary pay attention to the fine print of your plan – especially when it comes to protection against inflation. Some plans offer cost of living adjustment (COLA) which increases pension payments to keep up with inflation. This feature can be a lifesaver by protecting your purchasing power from being eroded by price increases over time.
Action items:
- Read the terms of your plan
- Calculate your expected monthly income
- Consider any potential lump sum payments
Remember that a defined benefit pension plan makes up a significant portion of your retirement income. Make sure you understand how it works and what to expect.
2. Evaluate your savings and investments
Then take some time to carefully evaluate your savings and investments. They will supplement your pension and help you maintain your lifestyle in retirement.
Start by carefully examining your RRSP and TFSA accounts, as these accounts can have a significant impact on your financial stability.
Then carefully review your investment portfolio to determine if any adjustments need to be made. To minimize risk and maximize potential returns, it is necessary to have a well-diversified portfolio. If you’re unsure about the current state of your investments, it’s wise to seek advice from a professional financial advisor who can provide valuable insight and expert advice tailored specifically to your unique situation.
Action items:
- Check your RRSP and TFSA
- Review your investment portfolio
- Consider any property or other assets
To minimize risk and maximize returns, it is important to have a diversified portfolio. If you are unsure about your investments, consider consulting a financial advisor.
3. Plan your health care
A common misconception is that healthcare in Canada is completely free. Canada has a great health care system and we are lucky to live in a country that provides many basic services, but it is not a one-size-fits-all solution.
Each province and territory in Canada has its own health insurance plan, and while they all cover the basics – doctor visits, emergency treatment and surgeries – the details can vary greatly. This regional variation can be confusing and can lead to unexpected costs if you are not intimately familiar with the ins and outs of your specific province’s plan.
For example, prescription drugs, dental care, vision care, and some types of therapy are not commonly covered by insurance. This means Canadians must either pay these costs out of pocket or purchase private insurance. It is also worth noting that although emergency treatment is covered by insurance, e.g Emergency services often are not – another potential surprise for those uninitiated in the nuances of the provincial health care plan.
The costs of prescription drugs, physical therapy, dental and vision care can add up quickly in retirement and can pose a significant financial burden if not anticipated and planned for.
As we move beyond the age of 65, the likelihood of need arises long-term care or home care services increases, and the scope of protection is often not comprehensive. For example, the cost of a private room in a long-term care facility or specialized services such as physical therapy or occupational therapy at home may fall entirely on your shoulders.
What does this mean for you before you retire? It’s wise to have an extra cushion to cover health care costs. Consider insurance solutions such as private health insurance or long-term care insurance. Planning ahead for potential expenses can provide peace of mind and financial security in retirement. After all, you should enjoy your golden years and not worry about unexpected health care costs.
Action items:
- Review your provincial health insurance
- Consider purchasing additional health insurance
- Plan for potential long-term care needs
Remember, it’s better to be prepared and not need it than to need it and not be prepared.
4. Consider your lifestyle
Retirement is a time to enjoy life! It’s time to finally indulge in the activities you’ve always loved but never had time for, to explore the world without the constant pressure of emails and deadlines, and maybe even give back to society in a meaningful way. It’s a beautiful chapter that needs to be carefully planned to make it not only rewarding but also exciting.
For example, travel is often at the top of many retirees’ lists. It’s no longer about a hurried weekend getaway or a standard tourist itinerary. It’s about immersing yourself in different cultures, tasting exotic cuisines, learning a new language or simply immersing yourself in the beauty of a foreign landscape. It’s about setting foot on every continent, crossing oceans, and even going on a camper adventure across the country. The world is your playground, and retirement is your ticket to explore it in your free time.
But travel doesn’t have to be the only thing in your retirement plan. This is also the perfect time to delve into hobbies and activities that bring you joy. From gardening to painting, from golfing to fishing, from cooking to photography, the possibilities are endless. You can even turn this hobby into a social activity by joining clubs or groups where you can meet other enthusiasts. You could take up a new hobby that will challenge you intellectually, such as chess or pottery. You can also return to your childhood passions that got lost in the hustle and bustle of adulthood.
Volunteering or working part-time in retirement isn’t just about staying busy; it’s about staying engaged and feeling valued. You’ve accumulated skills and experiences throughout your life – why not use them to make a difference? Whether it’s mentoring young professionals in your field, teaching English to immigrants, helping out at a local shelter, or working part-time at your favorite bookstore, there’s a sense of satisfaction in retirement that comes from contributing to society.
Action items:
- Travel plans
- Hobbies and activities
- Volunteering or part-time work
Whatever your plans are, make sure you have a budget for them. You don’t want to run out of money halfway through retirement.
5. Consult a certified financial advisor
Finally, consider consulting with a certified financial planner to help you navigate the complexities of retirement planning and ensure you’re on the right track.
Financial planners have the knowledge and skills to help guide you through the complex retirement planning process, ensuring you stay on the right path.
They can help you with:
- Your current financial plan
- Viewing your pension statement
- Considering your retirement goals
- Manage your investments
- Estate planning
- And a lot more!
This expert advice can make the difference between a comfortable, stress-free retirement and a retirement full of financial worries. By working with a financial advisor, you not only plan your retirement, but also create a safe future in which you will be able to fulfill your dreams without financial limits.
So don’t delay. Enter the world of proactive retirement planning and enjoy a future as bright as your aspirations!
Action items:
- Review your financial plan
- Discuss your retirement goals
- Get investment management advice
Follow the next steps
Sure, planning for retirement may seem difficult, but it doesn’t have to be. You know what they say – a journey of a thousand miles begins with one step. The first step towards a comfortable retirement is actually setting achievable goals. It’s the perfect combination of aspiration and feasibility. Are you looking forward to quiet evenings with a book, or maybe you are planning a trip around the world? Or maybe volunteering at a local community center suits you better? Depending on your preferences, your financial needs may vary significantly and should be factored into your retirement goals.
Once these goals are identified, you’ll have a clear action plan for navigating your financial journey.
