Wednesday, July 26, 2017
My 7 Step Retirement Checklist
This week at Budget Boss is all about retirement and all the fun that goes along with it. For young people, retirement seems too far away to think about. For those who are a little bit older, the reality of retirement and its requirements have started to settle in. What fascinates me about retirement planning is that it encompasses all aspects of financial security. Everything from mortgages, life insurance, debt, liquidity, living benefits and tax planning all fall into the retirement realm. To have a truly successful retirement you should try to touch on all these areas. The problem is that it is a lot of stuff to know and understand. That’s where your Financial Advisor comes in. Knowing what to do and when, and even more importantly, why, is crucial. The good thing about it is that some of the areas that need to be covered can be done over time. In this post today I will go over the key tips that make up my retirement checklist. Knowledge is power so I hope to shed a little light on what is needed to retire on your terms.
1) Start now, not now, but right now!
I don’t care if you are 20, 30 or 50 you have to start saving for your retirement. What I call this money is “bye-bye money.” This is money you won’t see again for a long time. Consider it a tax, and the tax-man is your future self. If you are in your 20’s, start by putting anything away in a TFSA. Your TFSA will be the vehicle for you to retire on your terms. Chances are you aren’t making a ton of money yet so the tax benefits of the RRSP are redundant for you. Once you start making good money think about an RRSP so you get the tax deductions. If you are in your 30’s or 40’s and haven’t started saving yet, you have to start now. You still have time, but now you can’t mess around and wait. If you already are saving for the future think about kicking it up a notch. If you are getting raises so should your savings. Get on it, seriously.
2) Understand Government Retirement Benefits
My post this morning was all about what you can expect from the government in retirement. If you read it you saw that it wasn’t much. I know that I would like to live on more than 20K a year in retirement. Another thing to realize is that you might not even qualify for these benefits. Depending on your contributions to CPP or even your residency during your working years you might get only partial benefits or sadly none at all. Not only that, it is all taxable!! Truly understand what the requirements for and amounts you will receive from CPP, OAS and the GIS. I guarantee you it’ll be less than you think.
3) Be Debt Free
You must, must, must, must be debt free. Your goal during your working years is to grow your net worth. There is nothing harming the middle class of Canada and their net worth more than crippling consumer debt. Net worth equals assets minus liabilities. That means if you have 50k in the bank but 50K in various debts you actually have nothing. This also means that you don’t own your home until it is actually paid off. You must focus very hard on getting rid of costly debts like student loans and consumer debt as well as paying down your mortgage. Stay the hell away from Home Equity Lines of Credit and any other form of dangerous credit. Decisions you make now in regards to debt will affect the rest of your life. You want to be able to dedicate your highest earning years (age 40-65) to aggressively saving for retirement and not paying off debts. Doing so might mean early retirement. Not doing so might mean never retiring.
4) Treat work like, well, work
Many people have a nonchalant view of work. One thing they don’t realize that money made at work will dictate the rest of your life. Some people only realize the seriousness of the situation when it’s too late. Not having money coming in at a consistent rate leaves you unable to handle the day to day expenses let alone grand ideas like retirement. I believe many people only think of: “How will I pay my bills if I don’t have a job?” They also need to think about how will I retire on time and take care of my future obligations. Your monthly obligations also include paying your future self. Don’t leave one job unless you have another if you can help it. Make it your priority to have a constant income stream so you never have to go into debt or borrow from savings/investment accounts.
How to Ask For a Raise….and Get It – Budget Boss
5) Protect Your Neck
I speak about it a lot but insurance is vitally important to any successful retirement plan. You might ask yourself “what does insurance have to do with investments?” When you have no money because you are sick and off work you will take from your investment accounts. When you husband dies uninsured and you can’t make mortgage payments you will borrow from your home equity. If you get cancer and can’t work for one year will you contribute to your retirement account???? Probably not. People need to realize that insurance wasn’t meant to make you rich. Insurance is in place so that you aren’t poor should the worst happen. Keeping what you have is the name of the game including your house, your investment accounts and most importantly your sanity.
Term versus Perm: The Great Insurance Debate – Budget Boss
6) Max it out Baby!!!
So you are saving money now and have retirement as a priority. Well now that you have started saving have you thought about how much you can actually put into these accounts? In my humble opinion, everyone should be maxing out at least one tax-advantaged vehicle. This includes your TFSA or your RRSP. I understand that it might not be possible when you first start out but it is a worthy goal to shoot for. Reducing monthly expenses, living frugally and not paying costly interest will make this goal possible. Ever wonder why the site is called Budget Boss? The reason is that if you refine your budget and cut expenses you can then max out investments and save money in taxes. Even the richest people find ways to save money so they can invest. It all goes hand in hand so make maxing out your accounts a goal. You won’t regret it!
Why You Should Max Out Your RRSP Contributions – Our Big Fat Wallet
7) Know Your Numbers
Do you know what you need per year to survive in retirement? Do you know what you need yearly to have a happy retirement? You have to know these numbers so that you can save the right amount during your working days to reflect the total. Once you are retired it will be too late. This is essentially “future budget planning.” Depending on how you handle your finances you might actually be richer in retirement than you are now! This is because your expenses will be lower and your taxes will also be lower. It could be that way or you can try carrying a mortgage into retirement. The choice is yours.
These tips are just a few of for retiring on your terms. The most important tip I can give is to take your retirement seriously. Treat your retirement savings like you treat a bill payment. If you do this you will succeed, no questions. If you tell yourself you will start tomorrow or next month or next year it will never happen. Let’s just put it this way: Saving for retirement might be one of the easiest things you can do. Life itself throws so many curveballs at you. Death, illness, job loss, injury are all things we all will have to deal with eventually. If saving money has you mentally depleted how do you think you will deal with the really tough stuff? Focus on abundance; everything will seem easy after that.
“Someone is sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett
Email – joe@budgetboss.ca
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