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retirement-2

February 2, 2013

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IT’S RRSP SEASON! I bet that didn’t trigger any excitement for you at all. In fact, for most of us, this isn’t something we look forward to every year; instead, it’s something enshrouded in mystery and, as you get older, something to be afraid of.

So many questions run through your mind: How much money do I need? How much money will I receive from the government when I retire? Am I going to be okay? But often, these questions don’t get asked or answered when you make your contribution and meet with your representative. The focus is often on the immediate tax benefit that will be realized by making a contribution.

Whatever your motivations for making an RRSP contribution, kudos for doing so. Studies show that people who plan for their retirement and know what to expect are much more relaxed about retiring. They look forward to it more than those who don’t plan and therefore often fear retirement. Let’s face it: the unknown is scary.

How much does one need to save for retirement? Unfortunately, there is no pat answer for that. Instead, it is important to define what retirement looks like to you. How do you plan to spend your time? Will you be on the golf course daily? Traveling the world? Will you sell your house and move to the cottage and lead a simple life? These are important considerations as those lifestyles will require very different levels of income.

If you are younger, you probably don’t know the answer to that yet, nor would I expect you to.  That does not mean you shouldn’t save.  There are some significant advantages to starting to save early rather than later.

Let’s look at some examples of the accumulation you receive when depositing $150.00 a month to an RRSP until the age of 65, beginning at different ages and assuming an average 7% annual return:

 

Age Deposits Begin

Total at age 65

 25

$370,731

 35

$175,418

 45

$76,130

 

As you can see, starting early makes a huge difference in the long run, due to the value of compounding. Monthly plans can be started for as little as $25.00 per month. Every little bit helps! Depositing monthly is also considerably easier on the pocketbook, and your money will grow faster in the long run versus one deposit every year.

What about government benefits? Well, we have the Old Age Security benefit, which currently begins at age 65, but over the next number of years that benefit will begin at age 67. The maximum monthly OAS benefit is currently $546.07. Canadians earning over $70,954 are subject to a clawback of benefits, and there are residency requirements to qualify.

If we have paid into it, we also have Canada Pension Plan benefits available; the maximum amount for that is currently around $1000 per month, although the average is around $525 per month.

Not a bad start, but that certainly won’t be enough to support us comfortably in retirement.

I have found that when people begin to define and visualize what retirement looks like to them, they begin to become more engaged in planning for it.  Personally, I plan on building a beautiful log home up north to spend my summers in retirement. When I save money every month for my retirement, it’s towards that log home I want so badly. I don’t begrudge it nearly as much that way!

No matter what age you are today, begin to think about what life will look like when you no longer have to work, and how you will spend your time.  You don’t want to be one of those people who become miserable when work stops because they didn’t plan for it. I strongly believe that defining our future greatly enhances our chances of getting there in the manner of which we dreamed.

So get out there and put some money away for that fantastic life that awaits you when your working days are over!!!  Dream big!!

About the Author(s)

Brenda Hiscock

Brenda Hiscock is a Certified Financial Planner, with a specialty designation in Critical Illness, Disability and Long Term Care Insurance. She works closely with individuals and business owners to help them to define and achieve their financial goals. She can reached at Brenda@guilfoylefinancial.com.

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