How To Create a Retirement Plan? A Step-By-Step Guide

With the Canadian life expectancy rate being 83 years, if you don’t have a retirement plan, you need to think again!

Creating a realistic and comprehensive retirement plan will help you envision a post-work life full of all of the things you love and want to do during your next chapter.

It doesn’t matter if you want to retire in your 50s or at 65. If you fail to plan ahead of time, you plan to fail your golden years.

Here I provide you with a step-by-step guide on how to create a retirement plan that suits your situation and income.

Once you learn the ten proven tips I will share, you will realize that creating a retirement plan is really quite easy.

Understanding Retirement

Before we dive into the ten proven tips on how to create a retirement plan, it is important to first understand what retirement entails.

Retirement can be a confusing term. What is it? Is it the final resting place for the elderly? Is it the time when people stop working to relax and enjoy their golden days?

Or, is it a time where you need to live off of your retirement savings and most likely not work anymore? All these depict the meaning of retirement.

In summary, retirement refers to the point where you stop doing your current career, income-generating activity and instead completely disengage from work.

This isn’t to say that you don’t engage in other activities or take up other hobbies; just that your main day-to-day activity is not work-related.

Retirement makes most people think about old age, but really it should be about the fun times, about the future and saving for some of that future.

One of the biggest benefits of retirement is that you finally have the opportunity to do what you want to do every day.

In addition to this, you can choose when you want to go out and explore the world or who you want to spend your days with. There are no more worries about getting fired from your job or working long hours.

Retirement is something everyone needs to plan for because if you don’t have a clear and concrete plan for your retirement, you’ll find yourself working right up until you die.

So what exactly is a retirement plan? To this, we now turn.

What is a Retirement Plan?

A retirement plan simply refers to the process of identifying and implementing strategies for attaining financial freedom during retirement.

A retirement plan is also a saving and an investment vehicle for settling your future expenses and improving your standard of living. Your retirement plan is one of the most important financial planning decisions that you can make.

Having a retirement plan to map out your financial future will help to ensure that you are able to live comfortably during your retirement years.

Unfortunately, retirement planning is one of the most underutilized aspects of personal finance. Most people think about their retirement only when they actually get there.

But that’s too late, because you are supposed to start planning for your future now, not when you’re retired and no longer have an income.

Retirement planning is not something that you should leave until you have attained your peak earning years.

In fact, it is best prevented while you are still young since the earlier you start saving. The more you can put aside each month, the more money you will recover from it over time.

Why Is a Retirement Plan so Important?

Retirement is a phase of life in which you will be able to enjoy your earnings and grow old with your family. You no longer have to go to the office, meet deadlines, and get orders. This is what you’ve been waiting for.

Any financial expert will tell you that a retirement plan is an integral part of your overall financial plan, and for a good reason. Here are some benefits you can obtain from a well created and implemented retirement plan:

  • Stress-Free Life

Everyone wants to enjoy a stress-free life after retirement. But without a plan, you may not be likely to achieve those goals. With a retirement plan, no more toiling under a supervisor or for someone else’s goals and achievements during your golden year.

A life without worry. The freedom to make your own decisions, create your own schedule, and travel when you want. A retirement plan lets you live the way you want to live.

A properly designed retirement plan can help you live a more stress-free life as there’s no need to rely on others or go through difficult financial situations in your old age.

  • Cost-Saving

Who doesn’t want to save money? A retirement plan is simply a way to minimize costs and maximize savings at your convenience. Whether you are a newbie to the workforce or you will be retiring soon, one thing is for certain: A retirement plan will help you save money.

At this point in your life, you should consider all possible ways you can optimize your retirement savings. Any money you can invest or place away will have a positive impact on the amount of money you have in the future.

Earning interest is always a good opportunity to make money without doing anything. You can invest or save your money and wait until you retire before you withdraw them.

This way, you have accumulated years of interest earnings through your savings.

  • Tax Benefits

A retirement plan not only helps you save money for your later life but also ensures that you pay less tax. With a retirement plan, you can take tax benefits and also enjoy compounding interest.

This helps you to save money for your future so that later you do not have to work and earn a living. Savings on retirement account grow tax-free so as long as you keep up with laid down conditions.

  • Financial Security

Having a clear picture of your retirement means that you will have enough resources to provide for your needs and those of your family in an effective manner.

A good retirement plan can help you safeguard your life savings as well as provide you with a source for financial assistance when you need it the most.

When you reach a certain age, it is really important to have something to fall back on, and your retirement plan can be used to pay for things that you will need or want once you have retired.

Now that you’ve learnt about the major benefits of a retirement plan, it is time to know how to go about creating a comprehensive plan.

10 Proven Tips on How To Create a Retirement Plan

So how do you create a retirement plan that is aligned with your goals and objectives? There are a lot of factors to consider and many issues to resolve.

Here are ten proven tips to follow in order to create a retirement plan that will give you peace of mind during your retirement:

  • Consider Your Situation

One of the biggest mistakes people make when creating a retirement plan is not considering their situation. They focus on what they think they should do instead of focusing on what is right for them.

Creating a retirement plan is not something you should rush into. You need to consider your situation and all the numbers.

This means knowing your current income and assessing your general financial condition. If you are married, it would also be good to consider your spouse’s income as well.

Once you understand your situation, you will have a clear picture of your financial situation and what you want to achieve.

  • Set Retirement Goals

Despite the fact that you are trying to save for retirement, you should also remember that it does not always imply that your financial goal is only to build an adequate fund.

You may have many other motives and financial goals as well. These may include purchasing a house, starting a business or just enjoying the pension period.

Be clear on these goals so that you can continue building towards them. If you are not clear on what these goals are, then it will be hard to reach them.

Whatever your goals are, ensure they are SMART, i.e.:

  • Specific,
  • Measurable,
  • Attainable,
  • Relevant, and
  • Time-Bound
  • Determine How Much to Save

It’s one thing to wish for a big nest egg down the road, but it’s something else entirely to make sure you’re saving enough today to actually have that big nest egg.

Similarly, in order to achieve your retirement goals,  you need to determine how much money you actually need to live in retirement.

How much you need to save is based on your income, financial condition, and retirement goals. However, it is important that you save as much as possible without sacrificing your standard of living.

The best thing you can do when determining how much to save is to estimate the amount that will be necessary to maintain your current lifestyle during retirement.

  • Open a Retirement Account

Now that you know the importance of saving for your retirement, do you know how to start? It can seem overwhelming to decide how to save for your retirement. Thankfully, a retirement account is your handy savings vehicle.

A retirement account is one of the most important financial steps you can take for your future. It encourages you to save while it also protects your investment from taxation.

There are many types of retirement accounts out there. This includes Registered Retirement Income Fund (RRIF), Canada Pension Plan (CPP), Tax-Free Savings Account (TFSA), and Registered Retirement Savings Plan (RRSP).

When deciding on which retirement account to open, there are several factors you’ll need to consider, including the costs, benefits and amount of money you’ll receive when you retire.

  • Optimize Your Income

Now that you’ve opened a retirement account, can this money possibly grow enough to quench your thirst for comfort in the golden years? Heck, not without additional income.

When planning for retirement, it’s important to consider your finances. Your income is the foundation for your retirement, and you may need to take extra steps in order to optimize it.

The best way to do so is through passive income. Passive income means that you earn money even when you are sleeping and working on other projects. There are many side hustles out there that can earn you passive income in Canada.

The truth is, the more money you earn now, the more money you will be able to save for your retirement.

  • Cut Your Expenses

Cutting expenses is a good way to save money no matter what your financial situation.

This doesn’t mean that you have to live in poverty, but instead need to prioritize some of your expenses more than others.

To get a good picture of your spending patterns and pave more opportunities to save for retirement, it’s important to track your expenses regularly.

In addition to keeping track of the amount going in and out of your accounts, you’ll learn where the bulk of your monthly expenditures are going, helping you figure out what areas you can cut down on.

  • Build an Emergency Fund

Building an emergency fund is one of the best steps you can take in order to ensure your financial freedom before and during retirement.

An emergency fund is a set amount of money set aside to cover any unforeseen circumstances such as health emergencies, financial emergencies, car emergencies and even home emergencies.

Should any financial emergency arise, you’ll be able to weather the storm until it passes without worrying about money or credit cards.

For a comprehensive guide on how to build an emergency fund, click here.

  • Minimize Your Debts

Without managing your debts, it can easily make you bankrupt. This is a significant factor as to why people don’t have enough savings at the end of the day.

If you have too much debt, it will be extremely hard to make the most of your retirement savings.

Also, you don’t want to put too much financial burden on yourself throughout your retirement years.

Knowing how to pay off your debt as fast as possible will help you save more for your retirement and have lasting peace of mind.

  • Monitor the Plan

A reliable retirement plan changes as your situation changes. In order to achieve the financial security a retirement plan offers, you must closely monitor it on a regular basis.

By doing this, you’ll be able to make adjustments to ensure it continues to serve your needs.

How often you review your plan depends on your income, the size of your assets and investments, the services you’re using.

Also, Income fluctuations, additional family members, financial losses, or some other significant life occurrence should prompt you to update your retirement plan.

  • Start Early

The best time to start planning your retirement is now! Seriously, it’s never too early to make a plan. You just have to plant those seeds early on when you’re young and not rely on that first paycheck you get at work.

Once you do, it becomes second nature to save and invest later in life when you start to earn higher wages or see your investments grow through early retirement accounts.

Creating a retirement plan early in life can help you accumulate ample funds. It also helps alleviate the stress of preparing later. The earlier you start, the easier it will be for you to prepare up for your retirement.

Over To You

Life is a race, and many people are just running aimlessly! They don’t know where they’re going or what to avoid along their path.

One should always plan the race before you start running! This is what a retirement plan helps you achieve. If you do not have a comprehensive plan in place, you are likely going to suffer from many unforeseen circumstances during your retirement days.

Having a sound plan in place early on will set you on course for a comfortable and secure retirement.

However, planning for your retirement should be a progressive target. The sooner you start, the better, but it’s never too late to revise your current retirement goals.

Hopefully, you can now take the next step of applying the above tips to create a customized retirement plan. If you have any questions or concerns on how to create a retirement plan, kindly let me know in the comment section.

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