Making retirement financially sustainable
One dictionary definition of “sustainable” is “able to be maintained” – and it’s something we hear often these days, mostly in relation to maintaining the ecological balance of our world. That’s the big picture of sustainability but, on a very personal level, sustainability is of vital importance to you. Will your retirement income be sufficient to sustain the lifestyle you want for all the years of your retirement?
Here are some things to consider as you try to ensure your financial life is sustainable throughout your retirement.
Decide when you want to retire - If you choose to retire earlier than age 65, you’ll have fewer years to save to retirement and more post-retirement years to fund. If you choose to retire after 65, you can opt to enjoy the tax-saving, income-building advantages of your Registered Retirement Savings Plan (RRSP) until the end of the year in which you turn 71 – and you can further extend RRSP benefits after 71 by continuing to pay into a plan for your spouse who is younger than 71.
Decide on your lifestyle - What you want to do and how you want to live in retirement will dictate its cost. Stay close to home and your costs may be lower. Travel regularly and your costs may escalate. You may choose to add to your income by continuing to work full or part-time, on a contract basis, or even by starting your own business.
Add up your income from all sources - Take stock of every post-retirement income source, including personal savings, company pensions, investments held in your RRSPs, Tax Free Savings Accounts (TFSAs), non-registered investments, and government sources such as the Canada Pension Plan, Québec Pension Plan (CPP/QPP) and Old Age Security (OAS).
Add up your costs - Estimate your retirement spending requirements in three categories:
- Essential expenses that can’t be reduced.
- Discretionary expenses you can control.
- Additional expenses such as healthcare that typically come along with aging.
Calculate the income you’ll need to cover your essential and discretionary retirement costs as well as the additional income you’ll need to cover the ‘extra’ expenses of aging.
Bridge the gap - If there is a shortfall between what you need and what you have, you should determine the level and frequency of income you will need via withdrawals from your registered and other income-producing investments – and keep in mind that your retirement could span 40 years or more.
Reset your strategy - If your estimated withdrawal rate is not sustainable based on projected returns from your current savings and investments you should reset your income strategy or reset your retirement plans.
And before doing anything else, talk to your professional advisor – the sustainability expert who can help ensure your retirement income will maintain for all your retirement years.
This column, written and published by Investors Group Financial Services Inc. (in Québec – a Financial Services Firm), and Investors Group Securities Inc. (in Québec, a firm in Financial Planning) presents general information only and is not a solicitation to buy or sell any investments. Contact your own advisor for specific advice about your circumstances. For more information on this topic please contact your Investors Group Consultant.
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