Retirement planning is a critical element of a full financial plan. Though many Canadians believe they will be prepared for retirement by simply setting up and contributing to personal Registered Retirement Savings Plans (RRSPs), there are a few more things to consider to ensure a retirement plan is optimized for an investor. Here are five quick tips to making the most of your retirement plan.
Don't Underestimate Your Retirement Costs
It's difficult to estimate retirement costs because each family's vision for retirement differs. Many professionals recommend using 70 percent of pre-tax working earnings as a guideline of retirement cost of living.
What do you want to do in retirement? Moving to a new area, downsize to a tiny home, taking longer vacations, pursuing new hobbies, or helping loved ones can increase current expenses. Poor health in later years can add to medical costs, and inflation impacts savings. It is better to plan for higher retirement costs now than find yourself struggling financially later.
Review Your Retirement Plan Regularly
Your retirement plan requires periodic reassessment. Your life and goals may change. If your plan is professionally managed, your adviser should contact you for an investment portfolio review quarterly, bi-annually, or at least yearly.
Do you have a company pension? If so, study your statements. Regular check-ups confirm you are on track to meeting your savings goals, and allows immediate discussion of under-performing investments or improperly diversified portfolios.
Understand Your Investments
Learn as much about investing as possible, especially if you are doing your own retirement planning. The internet provides many excellent free investing and retirement resources. Investors using a financial planner may not feel the need to understand the minute details of each portfolio holding, but a solid general overview is important. The more investment knowledge you have, the better you will be at spotting discrepancies and poor performers.
Set up a Full Financial Plan
Retirement planning is only one part of a financial plan. A comprehensive plan includes goals like establishing children's college funds, paying off a mortgage, minimizing taxes, protecting assets with insurance, and preparing for estate transfers. Consider your retirement funding in light of your other financial goals.
Select an Investment Professional To Suit Your Needs and Budget
There are many choices for managing your investments. If you use an investment professional, ask lots of questions before handing over your portfolio.
Planners earn money in many ways. Fee-only advisers charge hourly or flat fees for advice and financial plans. Some planners charge a percentage of your investments, some earn commissions by selling investment products, and others make money through all these methods.
Pay attention to your retirement plan! Your future self thanks you.