October is here, and school is in full swing. We have been greeted with cooler weather, and blazing foliage. Fall must be my favourite season, but it’s also bittersweet, I don’t know about you, but this time of year is also when trees start to shed and leaves die, which is probably why I start to think about my own mortality.
Rather than wallow in it, though, it makes sense to use this time effectively to think about the phase in life that comes for most of us, retirement.
What to Keep in Mind While Planning for Retirement
Whether you’re in your first job or your last one, chances are, you will eventually retire. When you’re younger, it could be quite far away, and if you’re towards the tail end of your career, it could be closer at hand. Regardless, it is always useful to have a plan.
1. Have a Number.
When can you retire? For you, does age matter more, or the amount? Either way, you need to have a number in mind. Estimate how much money you might need annually, use the CRA calculator to figure out how much you might get in CPP/QPP and OAS, subtract that, and what you have left is an annual capital amount you need to retire. Assuming a 4% withdrawal rate, multiply that number by 25, and that becomes the figure you need to work towards. Remember though, this is just a rough, back-of-the-envelope calculation. You might need more, or less. That’s why it is important to check the number every year, and eventually get professional help to ensure you’re on track.
Initially though, it is important to have a number to work with, so that you have a concrete goal to work towards. The Government of Canada has a retirement calculator that you could use as first guide.
2. Save.
This may seem like extremely basic advice, but you need to actually save towards your financial goals, whether it is something immediate like a holiday, or something decades in the future, like retirement. One way to ensure savings is to automate it. Make sure there’s a transfer out of your salary account the day you’re paid. That takes away the pressure on you to remember to do it. Doing it yourself requires memory power and willpower. Don’t leave your retirement to chance. Also remember to increase your savings amount when you get a raise, so that you are saving extra money before you get the chance to spend it.
And while you’re at it, make sure that you’re also taking advantage of the full employer match. Nothing can beat the return you get from employer matching. It’s worth it, your future self will thank you.
3. Use the Right Accounts.
Canada offers several account options for you, many with matching, or tax advantages. Make sure you’re using the right accounts for maximum benefit. There’s the First Home Savings Account (FHSA.) There’s the Tax-Free Savings account (TFSA) and the Registered Retirement Savings Plan (RRSP) You can find out which to contribute to here. Use the correct account to get the most benefit for your situation in life, and it could make your retirement journey smoother!
4. Resist Yourself.
It is tempting to gamble with your money, especially when you see meme stocks and other exciting opportunities. Don’t. Especially don’t do it with your retirement money. That money is sacrosanct; you never want to be in a situation where that runs out. On the other hand, it is not wise to rely on willpower alone. So always have a small amount of “play money” that you can afford to lose and then play to your hearts content with it. That way you scratch the FOMO itch without betting your future on it.
For everything else, consider hiring a professional to take care of all the work for you, which you can do with a single all-in-one asset allocation ETF. The professionals handle the rebalancing (and in the case of Harvest ETFs products, also designed to offer income) and takes the pressure off of you to manage it. That reduces the likelihood of mistakes.
5. Don’t Forget the Basics
You need a budget. You need to be smart. You need an emergency fund. These are essential for any financial goal, including one as large as retirement. Don’t assume that you can get to the finish line without these basics. For example, if you don’t have a budget, you don’t know how much you can realistically save. If you don’t have an emergency fund, you will end up selling your retirement portfolio to fund a roof repair. And if you have particularly bad luck, the emergency might come at market lows, meaning you will erode the value of your portfolio.
You need to make sure the basics are in place, so that you have a maximum chance of success in your retirement goals.
6. Factor in Key Life Changes, And Then Forget About It.
If you marry, divorce, have a child, or have other dependents, all of that could impact your financial situation, which means that all these events could impact your retirement plan as well. Any time a major life change occurs, take stock of your financial situation, and adjust your retirement plan. Also make sure you protect yourself and your dependents financially from any shocks – this means having adequate insurance.
But apart from that, pretty much ignore your portfolio and let it work for you. Pick one or two dates in the year – for me, it’s my favourite season, fall – and rebalance, check contributions, and make changes to your numbers then. The rest of the time, resist the urge to check and fiddle, and just let your portfolio be.
Retirement is a financial goal like any other. Follow the steps, and you will make it. Good luck on your journey!
Disclaimer
For Information Purposes Only. All comments, opinions and views expressed are of a general nature and should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage in personal investment strategies
Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds managed by Harvest Portfolios Group Inc. (the “Funds”). Please read the relevant prospectus before investing. The Funds are not guaranteed, their values change frequently and past performance may not be repeated.
