How to prepare financially for retirement
Planning for retirement financially means matching your income and savings to match your lifestyle and living costs. Retirement is a big change and risky. Rising living costs paired with a fixed income need careful planning ahead. The right conversations are necessary. You can’t plan for retirement without financial preparation.
Use this guide to prepare yourself financially for retirement.
Plan your monthly budget
Set your monthly expenses and income. Divide up what you need per month to cover your expenses. If either side of your budget doesn’t work, adjust it.
When you retire, be open to redoing this budget, as expenses or income may increase or decrease depending on several factors. The important element here is continual monitoring, which will help you stay on track financially over retirement.
Pay off and stay out of debt now
As you retire, you want to avoid debt. Pay off debts as soon as you can. High-interest debt, such as credit cards, is where to start. Next, look at your mortgage and other forms of debt.
Any interest you pay is money you want to keep in retirement. Make a list of your debts. Come up with a strategy to put some money on each until all of them have been paid off.
Select a living situation
If you have a home, you should live there. Retirement homes offer many more advantages if you want to cash out and use the equity to improve your quality of life.
Enjoy your own space, have access to medical care in an emergency, meet with friends at your leisure, and try the hobbies and activities you’ve always wanted to. Retirement homes are an excellent way to invest in your golden years.
Strategize how to convert your savings into income
Research the different strategies you can use in retirement to convert savings into income. A plan is needed to minimize tax payments and ensure you aren’t compromising future days by overpaying yourself today.
From RRIFs, annuities, and other forms of savings, a retiree can draw from these accounts when they see fit. You may consider speaking with a financial advisor to maximize your savings.
Invest your money wisely
You can reinvest investment earnings through compound interest to grow your money fast. You can start investing even as a retiree if you haven’t before. That said, retirement investing is high risk. If you lose your money in a major way, there may not be enough time to make it back and replenish your lost savings. For this reason, any retirement investment approach should remain conservative.
Increase your income sources
It may not be possible to increase income, but for any senior worried about what they’re bringing in, consider if there is a way to bring in more. It may be to sell more of your investments than you intended, start a side hustle, or work a part-time job.
If you pursue a route such as investing, you should ensure that your goals are realistic, your time horizon is appropriate, and your risk tolerance is low.
Register for benefits and savings
Pension income comes automatically, but federal government benefits won’t. You have to apply. Canada Pension Plan benefits, or CPP, can start at 60th birthday. Old Age Security, or OAS, begins at 65 or older. The Guaranteed Income Supplement, or GIS, is for low-income Canadians 65 and older. Apply for these to ensure your income is substantial.
Continue saving for retirement
Even after retirement, you should still have savings goals. You may want to travel at some point. You may have future health challenges or want to help one of your children with a down payment or pay for their education. You never know what life has in store.
At the same time that you’re using your savings to fund your day-to-day expenses, you must recognize that you still want some savings set aside for any of these or other situations.
Try out your retirement savings plan
Try out one month of faux retirement to see whether your monthly retirement budget will work and how prepared you are financially. This will give you a gauge on how well your retirement works and where it doesn’t.
If you have planned big lifestyle changes, those can take some time to adjust. Ideally, any retiree will want options, whether considering a retirement home, ways to increase their income, or expenses they can cut if needed.
