When should you start planning for retirement?

Planning for retirement can be such a broad term. What does planning for retirement really mean? Does it mean saving 10% of your income like the Wealthy Barber tells you to? Does it mean understanding your pension plan at work? Does it mean staying with the same company just so you can maximize your pension because it is the only way you are going to retire? Does retirement planning mean making sure you have enough income from the assets that you saved? Does retirement planning look at converting RRSPs to income? Is retirement planning about minimizing tax on your retirement income?

The fact is retirement planning is all these things, but retirement planning is very different depending on who you are and what stage of life you are until retirement planning. Not only is retirement planning different for everyone, but also it is especially different if you are 30 years old versus if you are already retired at the age of 85.

Lets take a look at what planning for retirement can mean depending on what stage in life you are in:

  1. More than 15 years away from retirement. Retirement experts will often emphasize the importance of life retirement planning over financial retirement planning. Life retirement planning refers to giving some thought as to what you want to do with your time in retirement. Are you planning to work? What hobbies will you be interested in? Will you volunteer? Travel, relationships, etc. The problem with a 30 year old is that very few 30 year olds know what they want 5 years in the future, let alone 20 or 30 years ahead. Retirement planning at this stage is more about accumulating retirement assets. It is about the old saying putting money away for a rainy day. At this stage it is really about trying to get a generalization about what you might need to save for retirement. More importantly it is about just saving and putting money away for the future. The younger you are, the more valuable compounding is because time is on your side.
  2. Five years from retirement. If you are five years from retirement or less, it is time to get serious. You’ve probably spent 15 or 25 years of life at work and have a better sense of what you might like to do and what you might absolutely not want to do. It’s time to really start to do some future income projections to find out about how much income you are likely to receive in retirement. It’s about fine-tuning the plan. It’s about organizing your retirement assets – RRSPs, non-RRSPs, pension plans, government benefits, etc. It’s about taking stock of your retirement assets and making some realistic projections about what you might need when you do retire. The closer you get to retirement, the more important it is to start thinking not only how you will spend your money but also how you plan to spend your time.
  3. Just about to retire. Some of the decisions you make in the short term will have serious implications for the long term. What kind of pension plan option should you choose? Joint Life? Co-ordinate your pension? It’s about applying for your government benefits. It’s about seeing someone about converting your RRSPs into income. Should you use a RRIF or annuity? It’s about understanding efficiency of income from a tax perspective. It is another ideal time to understand the longevity of your asset based on certain income levels and rates of return on your investments.
  4. Already in retirement. Now it is about efficiency. It’s about tweaking the plans you have already put into place. It’s about making adjustments to minimize tax, maximize your income, managing your assets. It’s about making your assets last as long as you can. It’s about managing your assets for today and tomorrow.

The bottom line is that planning for retirement is very important no matter how old you are and which stage of life you are at. Like most experts, the earlier the planning the better. The closer you get to your retirement date; you will have to pay closer attention to details.

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