Planning for your retirement is like any other project you take on in life – if you don’t give yourself a deadline you may never get around to it. And remember that it is never too early or too late to start planning for your retirement. You just need to roll up your sleeves and get to work. Here are some ideas to help you chart your course …
We all want the peace of mind of knowing that we will have a comfortable income when we retire. However, many of us don’t spend the time to think about retirement. Some of the barriers are:
But let’s take it one step at a time. The first step is to define our retirement income goal. Once an income target is identified, then our financial future becomes more tangible; we will be more engaged, and we can unravel the complexity and turn it into action.
How much money you need in retirement is a personal decision as it relates to the lifestyle you wish to maintain in retirement.
In retirement, some expenses such as CPP, EI and union dues contributions will disappear, while others may increase or decrease depending on your personal circumstances. On average, it is reasonable to expect that a lower income may meet one’s needs. However, as the needs vary between individuals, a good place to start is to assess your current living expenses and give some thought to how they may change in retirement.
Categorize your current annual expenses into the following:
Once you are done, remember that your total expenses must add up to your gross income.
After you have identified all your current expenses, look at them in a slightly different way to help you estimate how these expenses will change after retirement.
Remove your statutory deductions as you will no longer have those expenses. You can also allow for lower income taxes. Divide your other expenses into the following three categories to make it easier for you to know where the trade-offs, if any, need to be.
|Expenses necessary to meet your and your family's basic needs.||Expenses that are not necessary but they enhance your life and provide comfort.||Expenses that provide enhanced comforts. Generally, they fulfill dreams.|
|Analogy: Bread||Analogy: Cheese||Analogy: Lobster|
Doing a budget in anticipation of retirement will give you a clearer picture of what you’ll need in retirement. The logical starting point is what you’re spending now. Also, if your retirement income target presents a challenge to achieve, a current budget can help you identify areas where you might be able to cut back and save a little more for your retirement.
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