Retirement Planning - Steps and Things to Consider

Planning ahead is a good way to prepare for retirement.

1. Decide when you're going to retire. 65 is the average age of retirement in Canada.
2. Estimate the cost of your post-retirement needs. Try to account for things like hobbies, travel, new ventures and potential debt or remaining mortgage. You may also have the responsibility to care for an older or younger family member.
3. Think about the amount of money you would need to save in order to meet your retirement goals. Thismaymay be closely related to your current income and expenses, but depending on your lifestyle and ambitions, your expenses could potentially go up or down. Think about how your expenses could change once you retire – perhaps by then youyouyou will be mortgage or debt free.
4. A critical aspect of retirement planning is figuring out how much to save, how to save and where to save it.

As per the government of Canada, many financial planners say that having 60 to 70% of your current income in retirement may allow you to maintain your lifestyle in retirement. However, this rule of thumb is a guideline and may not work for everyone.

Depending on the type of retirement you want to have, you may want to adjust your goal to include ambitious vacation expenses or healthcare costs as you age, along with emergency expenses such as getting a new roof. To calculate how much income you may need in retirement, multiply your estimated annual income (considering your expenses) by the number of years of retirement.

Not all your retirement income has to come from savings. You can also factor in pension funds and other sources of permanent income.

As an example, let's assume that you will need $6,000 per month post-retirement. If you're expecting to get $1,500 per month from government pensions and $1,500 per month from an employer pension, you would need $3,000 per month from your savings. That works out to $36,000 a year. You then need to work towards investments that would yield $36,000 after tax per year in sustainable retirement income.

If you're a full-time employee, you may have access to retirement plans through your employer. This can be a good way to get a head start on retirement savings. Another option is to reach out to a financial institution for information on different types of savings accounts like: 

Registered Retirement Savings Plan (RRSP)

• An RRSP is an investment account  that's registered with the Canada Revenue Agency (CRA). 
• There is an annual contribution limit which is 18% of your previous year's income (up to a maximum set by the CRA), plus any unused contribution room from previous years. 
• RRSP contributions are tax deductible and can help reduce your income tax.  
• Any income earned within an RRSP is not taxed as long as funds remain within the account. 
• RRSP withdrawals are treated like income. If withdrawals are made  before an RRSP is converted to a Registered Retirement Income Fund (RRIF), withdrawals will be subject to withholding tax. The amount is dependent on your province of residence and amount withdrawn.
• RRSP accounts allow you to hold a wide range of eligible investments within them. This includes stocks, mutual funds, Exchange-Traded Funds (ETFs), Guaranteed Investment Certificates (GICs), and bonds.

Tax-Free Savings Account (TFSA)

• A TFSA is an account where your savings grow tax-free. 
• TFSAs are available to Canadian residents who have reached the age of majority in their province.
• TFSA contributions cannot be deducted from your taxable income and there are annual contribution limits to adhere to. The contribution limit in 2025 is $7,000.
• With very few exceptions, funds withdrawn from a TFSA are tax free. However, any U.S. dividends earned within the account are subject to U.S. withholding taxes on withdrawal.
• RRSP accounts allow you to hold a wide range of investments within them. This includes stocks, mutual funds, ETFs, GICs, and bonds.

There’s a lot to think about when it comes to achieving your retirement goals. You need to develop a strategy in order to build a portfolio that works for you. Here are a few factors to consider while building a retirement portfolio.

Risk capacity and tolerance: Your tolerance for risk is based on how willing you are to take a risk on an investment, knowing that you could sustain substantial losses. An investment that is high-risk and has you anxious about its performance, is probably not appropriate for your risk tolerance. However, risk capacity is also an important factor, which is not just about the amount of risk you are comfortable with, but also your ability to absorb investment losses. For instance, if you have additional assets or multiple sources of retirement income, you may have a higher capacity to absorb losses in your retirement portfolio compared to someone who relies more heavily on their portfolio.

Time horizon: Do you have a lot of time to save for retirement? Or are you starting a little later in life? Time horizon helps in deciding what to invest in. A longer time horizon can allow an investor to take on more risk as they may still have time to recover from losses due to market volatility, while a shorter time horizon may require investing more conservatively to reach your retirement goal. When planning for retirement, it's important to consider your age and the time you have until retirement. When you're younger, you have more time to recover from a down market, which means you can potentially take on more risk in your investments. However, as you get older, you may have less time to recover from market downturns, and this should factor into your investment choices. If you're starting late, it's advisable to periodically set aside larger amounts and carefully evaluate the amount of risk you are comfortable with in your investments, so you can aim to reach your retirement goal effectively. 

Portfolio diversification: It's never a good idea to put all your eggs in the same basket, especiallyee, when you have a financial goal. There are many ways to diversify your portfolio. You could diversify, by the type of investment (e.g. stocks, bonds, GICs, etc.), by the type of sector (e.g. growth stocks, utilities, cyclical stocks, etc.), by geography or by other factors.

Liquidity: There are many considerations when it comes time to withdraw your money.  One thing to remember is that funds in a TFSA can be withdrawn tax free. That means it might be a good idea that funds for short-term purchases like a car (or funds needed in an emergency) should come from your TFSA. If you anticipate needing funds, you should manage your portfolio so that you always have ready cash at hand.