Retirement Planning: Top 8 Retirement Accounts You Must Know as a Canadian

Congratulations on considering the path of retirement planning!

Before now most of our parents were lucky because they got to work for companies that had pension plans.

At 65, employees were able to retire comfortably.

Unfortunately, those days are long gone.

Now, some people have to work beyond retirement age in order to afford their desired quality of life.

Planning for your retirement is, therefore, one of the most important financial tasks you undertake in life.

It is a task that you should be undertaking in your 20s and should continue to plan for throughout your career actively.

However, since retirement planning requires a customized approach to suit different needs, it’s important to consider the retirement account that best aligns with your job and future goals.

So how do you go about it? How much do you need to retire? You don’t have to worry. I have done the hard job for you by identifying the top 8 retirement accounts you must know as a Canadian for your comfortable retirement.

As you continue reading, you will learn what these retirement accounts have to offer and how to go about choosing the one that suits your situation without sacrificing a lot of your lifestyle.

Table of Contents
3 Top 8 Retirement Accounts You Must Know as a Canadian

Understanding Retirement Planning

Retirement planning is a process in which one gets prepared for general life after retirement. This includes management income and assets, cutting expenses, using a saving program etc.

Furthermore, retirement planning in Canada is important and should not be taken lightly. It is figuring out how to live when you are no longer able to work and provide for yourself financially.

However, retirement planning requires strategic thinking and financial planning as you want to be able to enjoy the “golden” years without any worries or obstacles.

You may begin retirement planning at any time, but it is best to integrate it into your financial plan from the outset. This will guarantee your happy, healthy, and secure retirement.

People focus on retirement planning differently within different life stages. When an individual is young, retirement planning refers to securing enough money for a comfortable retirement.

Also, you can set certain income or asset targets while in the middle of your career and then take action to achieve them.

At retirement age, you stop accumulating assets, and instead, you begin enjoying what you have saved for decades.

Furthermore, a retirement account may be the greatest tool you use in your retirement plan. It provides a structure for systematically saving and investing money over time.

But what exactly is a retirement account? How does it work? How can it help you in your future travels of life?

Subsequently, you will find answers to these questions and many others.

What is a Retirement Account, and Why Do You Need it?

A retirement account is a special type of investment account that helps you save money for retirement.

Retirement accounts are suitable for individuals who are preparing for a long-term and stable retirement income.

Properly set up, these accounts improve the chances of you having an income to enjoy your post-work life.

One of the most important steps you can take in your personal finance journey is opening a retirement account.

As Canada’s life expectancy is 83 years, this implies that retirement could last between 20 and 30 years.

Additionally, Canadian seniors detest stereotypes. Rather than downsizing or transitioning into senior housing neighbourhoods, many seniors opt to age comfortably and pursue more active lifestyles.

The more activities and pursuits, the higher the costs and the need for available cash after retirement.

Continuously rising inflation rates in Canada are increasing the cost of living and making the economy more erratic.

Hence retirement accounts are the tool you need to arm yourself today against any financial uncertainty during your retirement.

However, not all retirement accounts are the same in Canada. As a Canadian, it is important to know the right retirement accounts that are suitable for your job and future goals. To this, we now turn.

Top 8 Retirement Accounts You Must Know as a Canadian

While there are many different types of retirement accounts, here are the eight top retirement accounts you must know as a Canadian:

  • Registered Retirement Savings Plan (RRSP)

The Registered Retirement Savings Plan (RRSP) is a form of retirement savings account that was introduced in 1956 to assist Canadians in preparing for retirement.

Contributions and dividends are tax-free as long as the assets are invested. This enables you to expand your portfolio in time for a comfortable retirement. RRSPs can be invested in a variety of different investment vehicles.

Additionally, all interest or capital gains earned within the RRSP are tax-free. Although when you withdraw from your RRSP during your retirement years, it is considered income and is charged at your marginal tax rate.

If you reach the age of 71, you must liquidate your RRSP and transfer it to a registered retirement income fund (RRIF).

There is no minimum age requirement for RRSPs, but you can only contribute after you have earned employment income and completed a tax return.

Frequently Asked Questions About RRSP

What is the RRSP Deduction Limit/ Contribution Room?

The RRSP deduction limit, also known as the contribution room, refers to the maximum RRSP contributions you are eligible to deduct from your income in a year to reduce your tax burden and liabilities.

It is called a deduction limit because it is tax-deductible and tax-sheltered, to make you tax-advantaged.

This deduction limit will take into consideration the total contributions made to your personal RRSP plans either by yourself or your employer, and it will also take into consideration the funds you have contributed to your spouse or common-law partner’s RRSP plan.

The annual RRSP deduction limit is set every year by the Canada Revenue Agency (CRA), and every working Canadian taxpayer has an annual limit based on 18% of their pre-tax income up to a maximum ceiling set by the CRA ($27,830 for 2020).

This implies that if 18% of your pre-tax income exceeds the annual limit for the year, the annual limit will be your deduction limit.

Let us consider the figure above, it is a live sample of an RRSP deduction limit statement, and it shows us how the contribution room is calculated by the CRA.

Yours can be found on your notice of assessment when you file your taxes and create your account with the CRA.

For instance, as shown in the figure above, if your income is $12,795, your annual deduction limit will be 18% of $12,795(which is equal to $2,303). But if you were a high-income earner with a take-home of $350,000, since 18% of $350,000 (which is equal to $63,000) exceeds the annual limit (of $27,830), then your annual limit would be the maximum ceiling of $27,830.

So if you have an unused deduction limit, you can use it next year (observe that the used deduction limit of $6,411 was carried forward from the previous year, and added to the annual limit of $2,303).

Therefore, your contribution room increases every year by earning new income and carrying forward your deduction limit.

However, your contribution room decreases when you or your employer contributes to your RRSP, or when you make spousal RRSP contributions.

What is the RRSP Deduction Limit?

This refers to the highest amount that Canadian taxpayers can subtract from their income when determining their tax liabilities.

The Canada Revenue Agency (CRA) sets the maximum deduction limit for registered retirement savings plans (RRSPs).

The amount of a taxpayer’s personal RRSP contributions and those made to the RRSP of their spouse or common-law partner cannot surpass the RRSP deduction limit, or the excess contribution would be taxed.

RRSP Deduction Limit

YearRRSP Contribution Limit
2020$27,230
2019$26,500
2018$26,230
2017$26,010
2016$25,370
2015$24,930
2014$24,270

 

What is the RRSP deadline?

Contributions to an RRSP for the 2020 tax year must be made by March 1, 2021.

Contributions made within the year’s first 60 days may be attributed to the preceding taxation year or any following year.

Can you take money out of RRSP?

You can withdraw funds from your RRSP at any time so far they are not in a locked-in plan. However, this is subject to withholding tax which must be included as income when filing your tax returns.

However, there are circumstances in which you can make tax-deferred withdrawals from your RRSP.

For example, funds used to make a first-time home purchase through the Home Buyers’ Plan or funds used to finance college through the Lifelong Learning Plan are tax-deferred.

No withholding tax is payable under this case, and the withdrawal is not considered income (so far, the withdrawal is paid back into the RRSP in due time).

Is RRSP withdrawal considered income?

When you withdraw money from your RRSP, it is normally considered income, and you forfeit your contribution room eternally, depending on your RRSP plan.

As a result, it is generally not recommended that a person withdraw money from their RRSP if it’s not the last option. In fact, large withdrawals will have a significant effect on the ability to invest tax-efficiently for retirement.

How to withdraw RRSP without paying tax?

Ideally, you should avoid withdrawing funds from your RRSP prior to retirement. Unless you are in dire financial straits and have no other choice, you should avoid touching your RRSP.

This is one of the reasons you need to build an Emergency Fund to diversify your income streams.

Nonetheless, there can be moments in your life where withdrawing from your RRSP makes sense. Under such instances, the best step you can take is to minimize or exclude the tax amount on your RRSP withdrawal.

If you make a withdrawal from your RRSP, your financial institution will automatically deduct withholding tax.

You may, however, reduce the withholding tax liability by making a small withdrawal such as $5,000 or less.

However, with a first-time Home Buyer’s Plan (HBP), you can withdraw up to $35,000 from your RRSP to use for a down payment on a home.

So if you and your partner are purchasing a home, each of you can withdraw up to $35,000 from your RRSP, amounting to $70,000 for your down payment.

Withdrawals made from RRSPs under the first-time Home Buyer’s Plan are not taxed.

Under the Lifelong Learning Plan (LLP), you can make an annual withdrawal of $10,000 from your RRSP up to a lifetime limit of $20,000 to fund education.

  • Locked-In Retirement Account (LIRA)

In Canada, a Locked-in Retirement Account (LIRA) is a form of a registered pension fund that prohibits withdrawals prior to retirement except in extraordinary situations.

This type of retirement account is intended to save pension funds for a former plan participant, a surviving spouse or an ex-spouse.

Generally, funds deposited in LIRAs only become available to holders (or “unlocked”) during retirement or when transferred to some form of pension vehicles such as annuity, LIF and RLIF.

Once the recipient attains retirement age, LIF, LRIF or the life annuity provided a lifetime pension.

The difference between a LIRA and a registered retirement savings plan (RRSP) lies in the fact that while RRSPs can be withdrawn at any time, you can’t withdraw anytime with LIRAs.

Rather, the LIRA contribution is “locked-in” and cannot be withdrawn before retirement or a particular age specified in the given pension legislation (though there are certain exceptions).

Another significant difference between standard RRSPs and LIRAs is that when funds are converted from a company pension account to a LIRA, additional payments to the LIRA are prohibited.

Any money gained by investing in the LIRA is also locked in.

Frequently Asked Questions About LIRA

What is the difference between LIRAs and LRSPs?

LIRAs and LRSPs are structurally and functionally similar.

The terms LIRA and LRSP refer to provincially regulated locked-in retirement accounts and federally regulated locked-in retirement savings plans, respectively.

How does a LIRA work?

If a plan is transferred to a Locked-In Retirement Account (LIRA), it is no longer eligible for further contributions. You are not permitted to withdraw funds from your account.

Unlike a standard RRSP, which permits you to make withdrawals, a locked-in account does not allow withdrawals.

Rather, you must transfer your LIRA to some form of account that will provide you with the retirement income you need.

What happens to a LIRA when you retire?

Immediately you retire, or by December 31st of the year you reach 71, you are expected to transfer your LIRA to either of the following:

  • Lie annuity,
  • Life Income Fund (LIF),
  • Prescribed Registered Retirement Income Fund (PRIF) or
  • Locked-In Retirement Income Fund (LRIF).
Life annuity

A life annuity is obtained from an insurance firm that guarantees regular payments for the rest of one’s life.

The amount you get is determined by your present age, the amount you pay for the annuity, and the current interest rate etc.

You don’t have a say on how the funds are invested in a life annuity. But you’re assured of a regular specific payout.

LIF

In a Life Income Fund (LIF), you have a say on the investment in your account. However, your withdrawals are restricted to a certain annual minimum and maximum amounts.

The withdrawal restrictions are in order to guarantee that pension accounts are used for their intended purpose of providing a benefit for the rest of your life.

PRIF

This account has no minimum or maximum withdrawal conditions.

Prescribed Registered Retirement Income Fund (PRIF) is the most flexible choice for your locked-in retirement account.

Bear in mind, though, that you can not get a pension tax refund on income held in a PRIF until you reach the age of 65. As a result, if you retire before 65, you don’t get the benefit.

LRIF

An LRIF is a locked-in account that was established using funds from a registered pension plan (RPP).

LRIFs are regulated by federal/provincial pension laws. Certain provinces have LIFs; some have LRIFs, others have both.

If you own an LRIF at the time of your death, your spouse or partner will be entitled to the entire amount of your LRIF either in a lump sum or converted to your spouse’s RRSP/RRIF, as required under the federal Income Tax Act.

  • Registered Retirement Income Fund (RRIF)

A  registered retirement income fund (RRIF) is a tax-free retirement account. Participants use an RRIF to earn money from their registered retirement savings plan.

Previously, you contributed to the RRSP in order to accumulate retirement savings. Now, you will withdraw the funds from your RRIF to supplement your retirement income.

The minimum amount will be paid to you following the year in which the RRIF is created. RIFF’s earnings are tax-deferred, whereas withdrawals from an RRIF are taxable.

You may have several RRIFs and self-directed RRIFs. RRIFs are usually subject to the same guidelines as self-directed RRSPs.

Frequently Asked Questions about RRIF

How much do you have to withdraw from your RRIF each year?

The minimum contribution amount is determined by a percentage factor, also known as the “RRIF factor,” which is multiplied each year by the fair market value of your RRIF assets.

The RRIF factor rises annually until age 95, at which point it is capped at 20%.

2021 RRIF Minimum Withdrawal Rate (2021)

General (%)Age
2.86%55
2.94%56
3.03%57
3.13%58
3.23%59
3.33%60
3.45%61
3.57%62
3.70%63
3.85%64
4.00%65
4.17%66
4.35%67
4.55%68
4.76%69
5.00%70
5.28%71
5.40%72
5.53%73
5.67%74
5.82%75
5.98%76
6.17%77
6.36%78
6.58%79
6.82%80
7.08%81
7.38%82
7.71%83
8.08%84
8.51%85
8.99%86
9.55%87
10.21%88
10.99%89
11.92%90
13.06%91
14.49%92
16.34%93
18.79%94+
20.00%95 & over

 

You can also check your withdrawal rate with an RRIF withdrawal calculator.

When should I convert RRSP to RRIF?

By December 31 of the year in which you turn 71, you must transfer your RRSP to an RRIF, whether you need regular income or not.

If you are below the age of 71 and need regular income (instead of monthly), you are generally better off saving your money in an RRSP and withdrawing it occasionally.

What happens if I don’t convert my RRSP to an RRIF?

By law, you must wind down your RRSP no later than December 31 of the year you turn 71.

If you do not comply, the government will automatically close your RRSP, and all of your declared savings will become liable to income tax.

How much tax do you pay on an RRIF?

Although minimum income RRIFs are not liable to withholding tax, you can apply for any amount of withholding tax.

For all such cases, a 10% withholding tax is applied to withdrawals less than $5000, a 20% withholding tax is applied to withdrawals between $5001 and $15,000, and a 30% withholding tax is applied to withdrawals above $15,000.

  • Life Income Fund (LIF)

A life income fund (LIF) is a form of registered retirement income fund (RRIF) that may be used to keep locked-in pension funds and other investments for future payment as retirement income in Canada.

A lump-sum withdrawal from a life income fund is not possible. The fund’s owners are expected to use it in a way that ensures retirement benefits for the rest of their lives.

The minimum and maximum withdrawal sums for RRIFs, which include LIFs, are specified in the Income Tax Act each year. The RRIF provisions of the Income Tax Act take into account fund balances as well as an annuity element.

The payouts of life income funds are calculated by a government formula that extends to all RRIFs.

The majority of Canadian provinces expect life income fund funds to be invested in a life annuity. LIF withdrawals start at any age in several provinces, provided that the money is used for retirement income.

If you are receiving LIF payouts, you must keep track of the minimum and maximum sums that you can withdraw.

The amounts are declared in the annual Income Tax Act, which has rules that apply to all RRIFs. The maximum of two formulas, each specified as a percentage of total investments, is regarded as the maximum RRIF/LIF withdrawal.

Frequently Asked Questions about LIF

What is the difference between a LIF and an RRIF?

The main distinction between a LIF and an RRIF is that, unlike RRIF, LIF has both a minimum and maximum income, which keeps you from spending money very fast.

What are LIF withdrawal rates?

A minimum and maximum withdrawal rate are determined every January 1st. You must withdraw an amount between the limit during the calendar year.

The withdrawal is dependent on either your age or the age of your spouse, depending on whatever option is used to decide your annual limits.

The maximum withdrawal amount may be above what is displayed in the table below. It may be equivalent to the previous calendar year’s investment gain from your LIF payment account.

LIF Minimum and Maximum Withdrawal Rates

Age (January 1st)MinimumMaximum
542.78%6.45%
552.86%6.51%
562.94%6.57%
573.03%6.63%
583.13%6.70%
593.23%6.77%
603.33%6.85%
613.45%6.94%
623.57%7.04%
633.70%7.14%
643.85%7.26%
654.00%7.38%
664.17%7.52%
674.35%7.67%
684.55%7.83%
694.76%8.02%
705.00%8.22%
715.28%8.45%
725.40%8.71%
735.53%9.00%
745.67%9.34%
755.82%9.71%
765.98%10.15%
776.17%10.66%
786.36%11.25%
796.58%11.96%
806.82%12.82%
817.08%13.87%
827.38%15.19%
837.71%16.90%
848.08%19.19%
858.51%22.40%
868.99%27.23%
879.55%35.29%
8810.21%51.46%
8910.99%100.00%
9011.92%100.00%
9113.06%100.00%
9214.49%100.00%
9316.34%100.00%
9418.79%100.00%
95+20.00%100.00%
  • Guaranteed Income Supplement (GIS)

In addition to the basic monthly Old Age Security (OAS) benefit, qualified pensioners receive a monthly non-taxable benefit called Guaranteed Income Supplement (GIS).

Besides the OAS pension, the GIS offers benefits to seniors whose income or joint income with their spouse is quite poor.

As long as you file your income tax return every year, you just need to register once for GIS and would not need to reapply.

You may receive a renewal application request in the mail if you do not file your income tax return or if the government requires more information.

To qualify for the GIS, you must:

  • Be a recipient of the basic OAS.
  • Be a resident in Canada.
  • Have an income that is lower than the maximum eligible income.

However, you might still not be eligible for GIS if you are:

  • A sponsored immigrant.
  • Convicted in federal prison for two years or more.

Frequently Asked Questions about Guaranteed Income Supplement

How is GIS calculated?

The GIS amount is calculated using income from the previous calendar year. The GIS payout year starts from July to June, rather than January to December.

GIS payment from July 2019 to June 2020, for instance, is based on 2018 income.

Starting from the highest payable amount, the GIS income is lowered by 50% for every dollar of other income you earn.

The sum of your GIS is determined by a number of factors, plus your filing status and whether or not your spouse/common-law partner is an OAS pensioner or earns Allowance.

How much is the Guaranteed Income Supplement?

Your GIS amount is determined by your marital status, your combined income in the previous tax year, or the total income of you and your spouse/common-law partner.

If you’re single, divorced or widowed, the monthly maximum payment is $923.71 from April to June 2021.

For those spouses or common-law partners, the monthly maximum amount applies differently.

To learn more, please visit the Canada Revenue Agency website.

How to apply for Guaranteed Income Supplement (GIS)?

Applying for a GIS is not a difficult adventure. However, you must provide the following information to apply for GIS:

  • Social Insurance Number (SIN).
  • Your spouse/ common-law partner details.
  • Banking information (for direct deposit).
  • Your reduction in employment or pension income, where necessary.
  • Select the date you would like your payments to start.
  • Provide information about the countries you lived in from age 18 upward.

GIS can be applied online or offline. Click here to learn more about the option that’s suitable for you.

How often is Guaranteed Income Supplement paid?

Every month, your Guaranteed Income Supplement (GIS) would be transferred to your Old Age Security (OAS) pension.

You’ll get the first payout either the month you begin your OAS pension or the month specified on your decision letter.

  • Old Age Security Pension (OAS)

The Old Age Security Pension (OAS) is a universal retirement pension tailored to 65-years old Canadian citizens and residents.

This is a type of retirement account that anyone at the age of 65 in Canada is eligible for. This is so regardless of whether the person has ever been employed or not.

The amount you pay to your Old Age Security (OAS) pension is based on how long you’ve lived in Canada.

This pension is augmented by the Guaranteed Income Supplement (GIS), which is applied to the regular OAS allowance for seniors of smaller incomes.

While they are 60 to 64 years old, certain low-income survivors and spouses of OAS recipients are qualified for an income-tested exemption.

Frequently Asked Questions about OAS

How much is Old Age Security?

The length of time you have lived in Canada since the age of 18 determines the amount of your Old Age Security Pension (OAS).

If your personal net annual income exceeds the net world income rate established for the year, it is considered taxable income and liable to a recovery tax.

What are OAS payment dates?

OAS payment dates for March 29 to December 22, 2021, are as follow:

  • March 29, 2021
  • April 28, 2021
  • May 27, 2021
  • June 28, 2021
  • July 28, 2021
  • August 27, 2021
  • September 28, 2021
  • October 27, 2021
  • November 26, 2021
  • December 22, 2021
What is OAS clawback?

If your income surpasses a specific threshold, you may be required to repay a portion of your OAS pension. This is known as OAS Clawback or the Old Age Security Pension Recovery Tax.

How is OAS clawback determined?

Whatever year’s income is employed, the clawback is measured as 15% of the amount your income surpasses the annual minimum income amount before your OAS is completely restored (often at the point of the maximum income amount).

  • Canada Pension Plan (CPP)

The Canada Pension Plan (CPP) is the country’s public retirement income scheme, intended to provide retirees with monthly income.

The plan is funded by both Canadian employers and their workers. It operates across every part of Canada, excluding Quebec, which has in place the Quebec Pension Plan.

The primary goal of CPP is to assist Canadian employers and their employees in contributing to retirement planning.

When you resign, the CPP intends to pay you 25% of your work income.

However, the increasing living costs are causing many Canadians to postpone their retirement.

As a result, the CRA introduced CPP enhancement in 2019, increasing the contribution limit and highest pensionable benefits till 2025.

Frequently Asked Questions about CPP

What are CPP payment dates?

CPP payment dates vary year after year. Below are the CPP payment dates for 2021:

  • January 27, 2021
  • February 24, 2021
  • March 29, 2021
  • April 28, 2021
  • May 27, 2021
  • June 28, 2021
  • July 28, 2021
  • August 27, 2021
  • September 28, 2021
  • October 27, 2021
  • November 26, 2021
  • December 22, 2021
How much will I get from CPP?

To qualify for the maximum CPP payment, you must have made the maximum CPP contribution per year for a number of years. The maximum monthly CPP payment for starters in 2021 is $1,203.75.

The highest CPP contribution for employers and employees is $3,166.45.

The highest CPP contribution is $6,332.90 for self-employed individuals. Self-employed individuals are responsible for both the employee and employer payment of the CPP. Annually, the maximum CPP changes.

Can you refuse to pay CPP?

You cannot opt-out of the CPP until you reach the age of 65. The election remains in place before you reach the age of 70 or until you revoke it.

Can I receive CPP while working?

Although you can receive both your retirement pension on your Canada Pension Plan (CPP) and your pension on Old Age Security (OAS) while working, there are certain factors to consider.

You can begin contributing to CPP when you are 60; even if you are still working at that age, you are expected to continue contributing to your CPP.

Bonus: 8. Tax-Free Savings Account (TFSA)

Similar to RRSPs, a Tax-Free Savings Account (TFSA) is an investment vehicle that requires you to buy a variety of investments such as bonds, stocks, mutual funds and exchange-traded funds, but with exceptional rules.

Just as an RRSP, you can create a TFSA investing account through a robot advisor or an online brokerage to optimize your returns.

If, on the other hand, you need flexibility and quick access to cash, a TFSA savings account is the ideal choice. This enables you to withdraw your funds at any moment and have quick access to them.

However, there are several important distinctions between an RRSP and a TFSA. Unlike an RRSP, you do not get a tax deduction with a TFSA for any contributions.

Nevertheless, all incomes, dividends and capital gains are entirely tax-free upon withdrawal.

But, an RRSP provides a tax exemption upfront but requires you to pay taxes on withdrawals.

Another significant distinction is that the TFSA is a multi-purpose account. Unlike RRSPs, you can withdraw funds from your TFSA at any time and use them on whatever you want. As such, you can use it to stash your money when saving for a trip or a down payment on a home.

However, since your TFSA contributions accumulate tax-free, you better use them as a vehicle for retirement savings.

Amount other requirements for opening a TFSA account are:

  • You must be a Canadian resident.
  • You must be at least 18 years old.

The amount of money you can deposit into your TFSA is determined by your existing annual contribution room in addition to any unused contribution room from previous years.

Retirement Planning in Canada: 5 Proven Tips on How to Plan Your Retirement Income

Knowing the top retirement accounts in Canada is one thing; knowing how to get started is another.

Here I round it up with some proven tips that can help you make the best out of your retirement account in Canada.

1. Set your retirement goals

Setting up some goals will help to hit the ground running once you have retired.

By setting specific goals, you can determine the type of lifestyle you want in retirement and how much income will be required to meet your goals.

Therefore, understand what you will need in your retirement and find a way to achieve the best income possible. You can get help from family, friends or a financial advisor if you need assistance with the planning process.

2. Control your spending habits

Be frank with yourself — how much money can you save now without going into debt to maintain your current standard of living?

Evidently, living less than your means today will enable you to save more funds for your retirement days.

Consequently, there is no sense in investing a large sum of money in your RRSP if you are just going to end up in poverty. You may not want to use the funds to pay off loans prematurely.

So are you planning to be more economical during your retirement years? Or wander the world and enjoy life?

Accordingly, your present and future spending habits are highly determined by the amount of investment you made in your retirement.

3. Plan for unexpected expenses

As is the case in most aspects of life, unforeseen expenses can occur when you retire or even before then.

So ensure you put aside any funds for such eventualities. An emergency fund will assist you in covering those costs without jeopardizing your retirement account.

However, most financial expert analysts generally recommend setting aside three months’ worth of living expenses for this reason.

4. Start saving early

The age at which you begin saving will have a huge effect on the amount of money you choose to save for retirement – and how much it will contribute to the growth of your total investment pool.

Always strive to save as much as possible from each paycheck. Use pre-authorized programs that automatically deduct a specified sum from your income and deposit it in a savings account or other investment of your choice.

Furthermore, income earned on these deposits has the potential to rise significantly with time.

5. Cut your debt as much as possible

Too much debt will be detrimental to your budget, even worse if you do not have a stable source of income in retirement.

Therefore, ensure that your retirement planning approach assists you in eliminating large amounts of debt. This includes credit cards or a traditional mortgage.

Executive Summary on Retirement Planning in Canada

A retirement account is a special investment and saving tool designed to help you get ready for your golden years.

Although the Internet is full of advice on how to prepare for retirement. There is a lot of conflicting information out there, even amongst financial planners.

However, you are now informed on how to go about preparing for your retirement through a retirement account that suits your income and retirement goals.

Hopefully, you can now make an informed decision on deciding which retirement account to open and how to go about doing so.

So the earlier you start planning for your retirement, the better.

Finally, if you have any questions or contributions on retirement planning in Canada, please drop them in the comment section.

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