iStockPhoto / Getty Images
What’s your retirement number? While Canadians, on average, hope to retire at the age of 61, nearly half aren’t sure when they will be able to retire, according to a recent CIBC poll.
In addition to not knowing how much they need to save for retirement, many Canadians today are grappling with rising prices and focusing more on covering their immediate expenses and less on saving for the future. While retirement may seem a long way off for many, there’s a big benefit to making retirement savings part of your regular budget, says Carissa Lucreziano, vice-president of financial and investment advice at CIBC.
“Saving for retirement isn’t just about putting money aside, it’s about investing that money to grow over time,” she says. “If you’re juggling different goals and are thinking about putting off saving for retirement, remember that any amount you can save today can help you avoid having a bigger savings gap to make up for later.”
When asked to determine the savings needed to retire comfortably, close to one-third of Canadians simply hope they’ll have enough money to retire while about 20 per cent calculated the amount they’ll need on their own. Only 14 per cent determined that number with the help of an advisor, the poll found.
Figuring out how much is enough
Retirement is too important to rely on guesswork, says Ms. Lucreziano. Given all the factors you need to consider in a retirement plan, it’s best to sit down with an experienced advisor who can map out a strategy that aligns with your goals, your current situation and how you expect your circumstances to change in the future.
For example, you may be expecting to earn a higher salary in a few years as you progress in your career, or you may be expecting to have higher expenses as you pay for your kids’ schooling or your own healthcare costs.
“Our advisors can help you figure this out by talking through the big questions, like at what age do you want to retire, what kind of lifestyle do you want to have – and how much money you’ll need to do that,” says Ms. Lucreziano.
“They can help you look at all your sources of income. Will you have a work pension, how much CPP will you be getting, will you have investment income or income from a rental property?”
An advisor can also help explore different scenarios, such as working part-time or pursuing passion projects to bring in extra income during retirement, or perhaps downsizing and using money from the sale of a larger family home to pay for expenses.
“The cost of healthcare and long-term care is also becoming a bigger factor in retirement planning,” says Ms. Lucreziano. “People are living longer, and you might spend more than 30 years in retirement, so an advisor can help you plan to avoid a shortfall.”
An advisor can calculate how many years you’ll spend in retirement, what the average annual rate of return you’ll earn on your investments, and how much you can withdraw comfortably from your account each year to ensure your money lasts, she explains.
A tool many clients find helpful is the CIBC Goal Planner, which gives a visual picture of timelines, the progress of savings to achieve goals, and how events such as a salary increase, or home renovation costs can affect a retirement plan.
Build your retirement savings into your budget
Creating and following a realistic budget is key, adds Ms. Lucreziano.
“The road to retirement is paved by everyday decisions you make about your money,” she says. “Our online budget calculator can give you a big-picture view of what money you have coming in, where you’re spending it and how much you’re saving towards your goals. This can really help you be deliberate about the decisions you’re making rather than leaving it up to chance and hoping you have the money to do the things you want to do.”
By building savings into a regular budget instead of viewing it as something to do ‘if I have money,’ Canadians can work toward their retirement goals while still living within their means, says Ms. Lucreziano. A good way to do this is by talking with your bank to set up a regular savings plan with automatic deposits made weekly, bi-weekly, or monthly.
Canadians who work for a company with an RRSP matching program can also ask their employer to deduct contributions from each paycheque “so you never see the money – it’s a great way to make regular contributions,” adds Ms. Lucreziano.
Determining the right investment mix is also critical for your retirement plan and best done with an experienced advisor who can review timelines, the investment returns needed to reach retirement goals, and how much investment risk you’re comfortable with.
“The long-term investments you need to beat inflation can sometime be very volatile in the short run – that’s the risk-reward balance,” says Ms. Lucreziano. “On the flip side, someone who’s really close to retirement should be more concerned about preserving capital and generating income. It’s important to work with an advisor to adjust your portfolios as you get closer to retirement.”
TFSA or RRSP? You can have both
For those trying to decide whether to put their limited savings into an RRSP or TFSA, Lucreziano offers this advice: you don’t have to choose.
“Investing in both accounts can help you be strategic about your retirement income,” she says. “For example, money you take out of your TFSA doesn’t count as income, so it won’t affect your eligibility for income-tested benefits like Old Age Security or the Guaranteed Income Supplement.”
Because RRSPs and TFSAs both have a contribution limit, investors should make sure they’re making the most of what each account offers. An advisor can help look at critical considerations such as career stage, income and anticipated salary increases.
When it comes to how regularly Canadians should be contributing to their TFSA or RRSP throughout the year, Ms. Lucreziano says there’s no right or wrong answer. While investing once a year puts a larger amount of money to work right away, making regular monthly contributions keeps savings growing consistently, she explains.
“Regular contributions also allow you to take advantage of dollar-cost averaging when you invest your money – some months you might be buying at a higher point in the market, other months you might be able to get a deal and buy at a low point,” she says. “Over time, it averages out.”
There are many factors at play as you plan for your own retirement, even if it’s far off in the future. “Retirement is a big goal and there are a lot of things to think about,” says Ms. Lucreziano. “Our advisors can help you look at it from all angles.”
Advertising feature produced by Globe Content Studio with CIBC. The Globe’s editorial department was not involved.