When planning for your retirement in the next 10 to 20 years, Rhonda Sherwood, wealth advisor at ScotiaMcLeod in Vancouver, first suggests taking some time to look at what guaranteed pension income or other income you will have coming in at your desired retirement age versus what expenses you estimate to be going out.
The shortfall (if any) will help determine how much you need to be saving and how to be investing. Rule of thumb - you want those essential or overhead costs to be covered by guaranteed incoming income. As such, if you have a shortfall in your income versus expenses at your retirement age, you might look to an annuity to fill the income need. However, before doing anything, seek the advice of a financial advisor to assess your unique needs.
You can request an updated pension statement from Revenue Canada for your Canadian Pension Plan (CPP). If you take your CPP early, you will be subject to a penalty. You can also request a pension statement from your company if you have a pension plan. Again there may be penalties for early retirement. There have been recent changes to the Old Age Security (OAS) pension that will most likely affect people ages 54 and younger, basically not qualifying for the pension until age 67.
Are there any other income sources you will have? Sherwood suggests filling in this simple form to help you see and plan things more clearly:
Income at retirement
Other Pensions _________
Other income _________
Expenses estimated at retirement
Household (taxes, maintenance fees, insurance, utilities) _________
Hygiene and Personal ________
Transportation (payments, insurance, gas, maintenance, buses/ferries) ___________
Lifestyle (entertaining, travel, hobbies, gifts) ___________
Now, what is the shortfall, if any?
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