Tax planning

When to start planning for retirement?

Published by
Alexandre Blouin
Alexandre Blouin

It is never too early to start thinking about retirement planning. Ideally, people should start saving some money for retirement as soon as they start receiving an income. Taking good financial planning decisions over the course of one’s life is key to guaranteeing yourself a more enjoyable and secure old age.

What is retirement planning?

Retirement planning consists in preparing today for the life you wish to live in the future. By setting retirement income goals, people can premeditate on the things they wish to do once their working days are over. 

Depending on a particular individual’s area of residence, there are different options regarding wealth management plans. In the United States, for example, people have access to a 401(k), a retirement planning vehicle set up by an employer to set money aside for an employee’s retirement, similar to the Registered Retirement Savings Plan (RRSP) in Canada, without the advantage of being able to be set up by individuals at a bank.

By hiring the services of a financial advisor, those interested in having their future in good hands can rest easy knowing the right steps towards their retirement planning goals are being taken. Proper wealth management can make the difference between a retirement spent vacationing or watching TV.

Why is retirement planning important?

Decisions we don’t take in our own hands are thereby taken for us by life. Leaving things to the last minute means that you will approach retirement blindly, unprepared for the trials of late adulthood and the obstacles along the way.

Retirement planning isn’t just about putting some money in a piggy bank every month. When you prepare yourself for the future, you are also preparing to better deal with the present.  Wealth management requires you to have an overview of money from your assets, rethink future expenses, and consider your life expectancy.

How much retirement income should I have?

While some experts will say it takes around $1 million for someone to retire properly, the retirement planning goals of an individual are the main determinant of how much money they must save in order to have a comfortable retirement income.

Many people expect to be able to spend their old age vacationing in the Caribbean for half of the year. Other people want to keep it low, spending their retirement somewhere nice and quiet, sipping tea on the porch of a sunlit cabin with the only sound being the echoes of the birds chirping. No matter how you envision your future, you will still have to consider how much money you will expect to spend every month.

A viable strategy for many people is to plan on having 80% of the income they used to perceive when working as their retirement income. For someone accustomed to earning $100 000 per year, this means having $80 000 saved for every year of their retirement, which would normally be planned on a 15 to 20-year range.

People who haven’t given a thought to saving for retirement most of their working life, however, might have to learn to adapt to living a more modest life as they age. Employer-sponsored plans can help someone achieve stability during their later years, but with the help of a financial advisor, other avenues of income such as retirement assets and tax deductions can help someone live a more fun retirement.

10 reasons to make an appointment with a tax specialist

Benefits of retirement planning

The benefits of retirement planning:

  • Approach future health issues with more confidence
  • Be better prepared for the unexpected
  • Have more fun during your retirement

Approach future health issues with more confidence

Aging means visiting the doctor more often. Not only do people need to have their health in higher regard as they become older, but they also have to consider the time investment and transportation needs they will require. Proper wealth management can help someone feel less anxious about taking a cab back and forth from the doctor on those days when going by oneself is too daunting and the in-laws are out of town.

Today you might be a beacon of health, only visiting the doctor for the occasional checkup. While enjoying good health for most of our lives can be seen as a blessing, it comes with a downside: it means that once people age they will be unaccustomed to the extra steps to life brought by dwindling health.

Be Better Prepared for the Unexpected

Financial planning helps you prepare for the uncertainties of life. The world of 2021 has been harshly shaped by the COVID-19 pandemic. Although we don’t have crystal balls to predict when the next world-changing event might come, we know that having money saved up for a rainy day is always a good idea.

Have More Fun During Your Retirement

Retirees have tons of options available to them. It is not uncommon for people to spend their retirement traveling the world in a motor home or moving somewhere nice and quiet where one can focus on their pastimes, unbothered by the chaos of the outside world. Others decide to go on cruises or vacation to tropical areas, while those who wish to live socially among other retirees look for rent in the many communities that cater to elders.

Many people do not realize that one day the job they have been accustomed to for most of their lives will no longer be there, and all those weekly productive hours will be replaced with nothing. Through good wealth management, people can start planning today the adventures they will have during their old age, and make sure they reach that age with the funds to achieve them.

3 ways to prepare for retirement

1. Take advantage of employer-sponsored retirement plans

Citizens of Canada have access to establishing a Registered Retired Service Plan (RRSP). This retirement planning option can be set up by any individual and will be registered and recognized by the Canadian authorities. Depending on the type of RRSP someone has set up, both the individual who set up the plan or their spouse or common-law partner are allowed to make contributions.

A Group RRSP is a form of employer-sponsored retirement planning, where the administration of the savings plan is done by your employer for you and all other employees in your workplace. It will often be the case that contributions to the RRSP by an employee will be matched by the employer, up to a maximum of 5% of earnings.

You can contribute to an RRSP until the 31st of December of the year you turn 71 years old. Your money may have been “locked in” until that moment. Once someone turns 71, they can then withdraw their funds, transfer them to their Registered Retirement Income Fund (RRIF), or use them to buy a form of insurance called an annuity, which will guarantee them some degree of flexibility with how they handle their money.

It is important to note that in most cases there will be no tax deductions on any income earned on the RRSP, as long as the funds are not withdrawn from the plan. Once it's time to remove those funds, however, there will be a fee. Individuals can expect to pay tax when they receive money from the plan.

One must be wary of third parties offering “tax-free” investment promotions to withdraw funds from your RRSP. These “RRSP schemes” will commonly ask you to invest in shares in a company or units of participation in a cooperative, and will claim unrealistic returns on investments. Unless you’re versed in trading, it is better to have a financial advisor help you when it comes to investing part of your future retirement income.

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2. Set aside money from your assets

Assets can be anything you own that holds value. The valuable liquid assets or commodities in question may be “cashed out”, or, through the right financial planning strategies, see its value raised and used to accrue even more assets, thereby increasing an individual’s perceived passive income. Having assets is a good way to have a source of income that can accompany someone through the rest of their lives.

Some assets are physical objects while others are intangible, such as owning the rights to a song. Examples of assets are:

  • Properties
  • Land
  • Family heirlooms
  • Works of art
  • Patents
  • Trademarks
  • Intellectual property
  • Bank deposits
  • Bonds
  • Loans
  • Stocks

It is important to note that when thinking about assets, one must know the difference between the ownership of an asset and a liability. Liabilities are expenses that are pending, normally in the way of money owed because of purchased goods and services.

More often than not, something considered as an asset is actually a liability. Examples of liabilities include:

  • Loans
  • Mortgages
  • Bonds
  • Deferred revenues
  • Warranties
  • Expenses

Many people, for instance, consider their house to be an asset. However, there are many liabilities when it comes to trusting your home as a future asset. Repairs, remodeling, plumbing, fixing electrical connections, and many other hidden costs exist for homeowners, and these might be taking away more from your retirement income than you could have previously thought.

3. Hire a financial advisor

If you’re asking yourself, “how can a loan be both an asset and a liability?” or “what RRSP would work best for me?” then rest assured knowing that you’re not alone. Hundreds of people ask themselves the same questions every day, and there are professionals dedicated to helping those people achieve their retirement planning goals, regardless of them having economic literacy or not.

A financial advisor will help you decide what decisions to make with your money. If, for example, you wish to trade on the market, a financial advisor will be tasked with handling all the heavy lifting on your behalf. The services offered by tax professionals are numerous, as they can guide you in all areas of your financial life, from your savings and tax returns to even helping you plan for your vacations.

When it comes to retirement planning, your financial advisor will take the role of a mentor. Not only will he help you understand what it will take for you to achieve your retirement planning goals, he will also give you advice on budgeting, saving, and investing. Together you will go through all the factors you should consider into your retirement income, so you can have a clearer view of what to expect from the future.

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Retirement planning with Barricad

It doesn’t matter if you wish to retire next year or in the next 15, there is always the need and the opportunity to do some financial planning. With the help of Barricad, you can move steadily towards your retirement planning goals without having to worry about the details yourself.

Working alongside the Barricad team, you can learn how your budgeting directly affects the life you will be able to lead in the future. Good wealth management will not only keep you healthier and more comfortable, but it will also give you access to more activities and let you plan vacations and events with your loved ones.

Tax specialists at Barricad will help you assess your sources of income be it your assets, savings, or your RRSP, and will help you retire in your preferred conditions. Our professionals will keep track of the progress of your retirement over the years to make sure your objectives are being met. Contact us and discover all the benefits that come with working side-by-side with the best tax specialists!

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