What to think about 10-15 years from retirement

Planning for retirement can be exciting. Often, it can be a little overwhelming as well because there’s a lot to think about.

When do you plan to retire? According to Statistics Canada, the average retirement age for Canadians back in 2010 was 62.1 years, but by 2020, it had climbed to an average of 64.5 years.¹ Whatever age you have in mind for your retirement, as you start to inch closer, you’ll need to start to prepare.

If you’re currently in your 40s or early 50s, start to envision what your life might look like in retirement. It’s time to figure out your retirement goals to ensure you’re setting aside enough money to fund them. Below, we provide a few tips to help you start planning:

• Creating a retirement budget
• Paying off debt
• Maximizing your contributions
• Starting on estate planning
• Reviewing your portfolio’s risk exposure

Create a retirement budget

How can you figure out if you’ve saved enough for retirement if you don’t know how much your retirement will cost? Start with some educated guesses. Prepare an approximate budget that gives you a realistic idea of your basic living costs during retirement – and then check it against your projected retirement income to identify any funding gaps.

• Calculate your household expenses, such as mortgage or rent payments, utilities and municipal taxes. Include your monthly grocery tab, health insurance and prescriptions, and any other basic necessities.
• If you have (or will have) any debt, loan or credit card payments, don’t forget to include them.
• Leave room in the budget to maintain a contingency fund for any emergencies.
• Factor in realistic entertainment or discretionary spending budget.

Manage your spending

Many people find that their disposable income increases in their 50s as kids move on and they become empty nesters and their salaries peak. Try not to let your spending increase in tandem and use that extra income to bulk up your retirement savings. Spending your excess, and becoming accustomed to a more luxurious lifestyle, can make it more difficult to retire.

Pay off debt

Just think how much tougher it will be to pay down your debt once you’re no longer earning employment income. It’s a good idea to start paying it off now so you can retire with as little debt as possible. Start by eliminating your higher-interest debt first (credit cards) and chip away gradually at your mortgage, car loans and other debt you’ve accumulated.

Play catch up

You may be able to make up for lost time in your 40s and 50s if your income is higher. There’s unwritten rule that for every decade you age before you start saving, the percentage of your income you should put toward retirement increases by another 10%. That means if you start in your 40s, you should save at least 30%, versus 10% in your 20s, and 20 per cent in your 30s. Catch up on your registered retirement savings plan (RRSP) contribution room and maximize your tax-free savings account (TFSA) contributions to ensure you meet your retirement goals.

Start on your estate plan

It can be difficult to talk to loved ones about preparations for when you’re gone, but leaving things to chance can be a source of greater emotional and financial stress on your family. Start having those financial and health conversations with your family. And think about creating a will and/or a living will, explore pre-paying your funeral expenses, and if you have the resources, consider putting a trust in place to take care of family members.

Consider your portfolio’s market risk exposure

Some investors reduce exposure to stocks as they get older to avoid risking money they could need in the shorter term. While this works for some, you also needs to take into consideration the relatively low interest rate environment. Rising life expectancies have inspired some investors to maintain or increase their exposure to equities, even as they close in on retirement age. The right investment mix for you always depends on your risk tolerance and time horizon, so do a gut check: How will you sleep at night if the markets experience a major correction in the near term? Will it impact your quality of life in the short-to-medium term?

If you’re just a few short years away from retirement, we’ve got six more things for you to think about when planning for your retirement.

And if you haven’t started planning yet, and don’t have a clear understanding of what your retirement will look like, start picturing it. Check out these ideas about how much you might need to save for retirement.