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6 Steps to Determine Your Retirement Deadline Thumbnail

6 Steps to Determine Your Retirement Deadline

RRSP Deadline March 2, 2020

In 2020, your Registered Retirement Savings Plan (RRSP) contribution room is limited to 18% of your 2019 earned income, to a maximum of $27,230 plus any carry-forward contribution room you may have.  March 2, 2020 is the last day to make your RRSP contribution for the 2019 tax year.

Making your RRSP contribution is an important step towards your retirement, however, retirement planning is about much more than just saving. Good planning involves actionable steps to visualize getting from now to the desired tomorrow. Here are six ways to make that idea a specific, detailed plan towards a retirement date you can live with:

Step #1: Set Reasonable Income Goals

We would all love to be millionaires in our retirement, but that may not be a reality. A practical, doable retirement plan starts with identifying what one really wants as a livable, enjoyable income in retirement. For some that might be $50,000 a year. For others, it might be $300,000 a year. Whatever the number, spend some time pegging the true cost and spelling out why it should be that number. How you get to the number then defines your retirement date.

Step #2: Determine Where Your Income Will Come From 

Some of us assume our work will be enough and whatever is taken out of our paycheques will pay for our later years. For a few with a defined pension plan, that might still be the case. But for the rest of us, income sources may be a mix of retirement savings, government benefits, and potentially continuing to work during retirement.

Step #3: Evaluate the Necessary Real Savings

This is where time comes into play. Based on your target annual retirement income goal, the amount you need to save each year can very greatly depending on your current age.  Saving early in your life allows the magic of compounding to work fully, so while saving 10 percent of net income (after taxes) may be fine for someone in their 20s, if you are in your 40s, you have less time until retirement and will need to save more for the same target.

Step #4: Take a Look at Your Health 

If your family history is one with a lot of 100-year-olds, there’s a good chance you’re going to genetically do the same. So your savings plan needs to anticipate you will need more retirement for a longer time window. If, on the other hand, you’re closer to the average mortality rates, take that into account too. No one knows for sure how long they have, but with modern medicine people overall are living much longer, well into their 80's. Your retirement has to account for this fact if you want to live comfortably.

Step #5: Consider Health Insurance Coverage

Many people peg an age number to retirement and hope everything falls into place. But practical issues often get in the way. A common issue is health insurance coverage.  If you have always had a group health insurance plan, then factoring in the cost of private health insurance may be new to you.  The coverage amounts, and overall maximums are also factors that can impact how much insurance will cost, and whether all of your medical expenses will be covered.

Step #6: Starting Late Is Better Than Not Starting at All 

If you're worried about your retirement savings to date, don't despair - starting late for retirement is still a good idea versus no planning at all. Government benefits alone may not be enough, so don’t ever assume it will be your safety net without any planning. If you're starting retirement planning in your 50s, you will have to save more aggressively, but you also may have more discretionary income as your major bills will reduce or stop, such as mortgage payments or college tuition.

If you'd like to review your retirement plan, discuss any life changes that may affect it, or are nearing retirement and would like to review the most tax-efficient way to withdraw from your retirement savings, contact us - we're always happy to hear from you and to help.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.