Retirement is supposed to be the time to finally enjoy life—but what if you miss a crucial step that could cost you big time? Don’t worry; we’ve got you covered. Here are 9 things you must do before you retire in Canada. We’ll start by walking you through the first 5 steps using a fun example.
Meet Pam and Jim Halpert.
Thanks to our financial planning software, we can see that Pam and Jim are in an amazing spot—they’re overfunded for retirement. They’ve exceeded their goals by 9%, with a retirement surplus of $640,045. Let’s break down exactly how they achieved this, and how you can too.
Step 1. Assess Your Current Financial Situation
First things first: let’s talk money. Do you know where you stand financially? For Jim and Pam, this step was revealing. They could see that they had substantial savings spread across different accounts: RRSPs, TFSAs, non-registered accounts, and more.
Their data shows a steady increase in their total net worth as they approach retirement. By age 65 (their planned retirement age), they have an impressive combined net worth of over $1.7 million.
Tracking all your assets, liabilities, and income sources gives you a clear snapshot of your financial standing. Think of it like creating a financial “selfie”. If you’re like Jim and Pam, who managed to consolidate accounts and track spending diligently, you’re in good shape.
But if you’re unsure, consider using tools like Excel or Quicken to get started. Consolidating accounts like they did can also help minimize fees and make management simpler.
Step 2. Define Your Retirement Goals
What does your dream retirement look like? For Jim and Pam, their goal was to maintain a comfortable lifestyle with plans for travel and other activities with their family.
A big part of this goal includes decisions about housing. Pam and Jim planned to stay in their home, so they needed to factor in maintenance costs, potential home modifications, and real estate taxes. By doing so, they could budget more accurately for their later years.
- Downsizing: Moving to a smaller home can free up equity, reduce maintenance costs, and lower property taxes.
- Relocating: If you plan on moving closer to family or to a more affordable location, you should account for new living costs.
Pam and Jim’s scenario didn’t include downsizing or relocating, but many retirees in Canada might find that adjusting their housing situation can significantly impact their retirement budget. Whether you stay put or move, factoring in housing costs is key to having a realistic retirement budget.
Step 3. Calculate Your Retirement Expenses
Jim and Pam have set their annual retirement spending goal at $90,000, which includes their basic living costs and some discretionary spending for travel and hobbies. Planning for these expenses is crucial to ensuring a smooth retirement.
Their projected expenses begin around $90,000 in 2024, staying consistent in real dollars as they approach retirement. This helps them maintain the lifestyle they want without worrying about running out of money. By consistently reviewing these expenses against inflation and any potential unexpected costs, they make sure they are financially prepared for the long term.
Whether you’re planning a modest lifestyle or something more extravagant, calculating your annual expenses, like Jim and Pam, helps create a clear picture of what you need to save. Having a realistic idea of what you’ll spend keeps you on track to enjoy your retirement stress-free.
Step 4. Understand Your Income Sources and Withdrawals
Jim and Pam’s projected income levels leading up to retirement are impressive. In 2024, their combined total employment income is $160,000, with additional income sources bringing the total to $190,000. Not bad for a paper salesman and a receptionist!
Their income continues to remain strong up until retirement, allowing them to comfortably save and prepare for their long-term financial goals.
Looking ahead, Jim and Pam plan to make strategic withdrawals from their RRSPs and TFSAs. For example, in 2042, they expect to withdraw $46,567 from their RRSPs and $25,150 from their TFSAs. Their plan to gradually draw from these accounts helps them maximize their retirement savings and see that they have a steady income stream for years to come.
Jim and Pam plan to start CPP and OAS benefits at age 65, expecting $27,178 from CPP and $29,273 from OAS annually starting in 2042. They could delay benefits for larger payouts (up to 42% more for CPP by age 70) or take them earlier at age 60, with a reduction of up to 36%.
Their current strategy of starting at 65 balances well with their overall retirement plan, but they can reassess closer to retirement based on their financial needs. Deciding when to take CPP and OAS is key to maximizing retirement income, and should align with your broader financial goals.
For anyone approaching retirement, it’s super important to have a clear understanding of your income sources. Whether it’s from pensions, investments, or savings, knowing where your money will come from—and how much you’ll need—sets you up for financial success.
Step 5. Stress-Test Your Retirement Plan
Even if your retirement plan looks great on paper, it’s crucial to test how it would hold up under real-world challenges, like market downturns or unexpected expenses. That’s exactly what we did for Jim and Pam by running a stress test on their retirement portfolio to see how it would perform in less-than-ideal scenarios.
In their stress test, we used a conservative projection with an average annual return of 1.54% real and 3.83% nominal, based on a portfolio of 10% cash, 40% fixed income, and 50% equities. Despite these modest returns, Jim and Pam’s plan came out strong. Their retirement goal remained overfunded, with a surplus of $533,132 and a goal progress of 107%. This means that even in tough times, their portfolio could comfortably cover their planned annual spending of $90,000.
The results showed that Jim and Pam could safely retire at 65 without worrying about running out of money. If they ever needed to adjust their withdrawals—maybe to handle a sudden expense or market dip—they could tap into their additional savings or cut back on discretionary spending without jeopardizing their retirement goals.
Their overfunded status gives them flexibility and peace of mind, allowing them to ride out market ups and downs while staying on track. However, it’s always a smart idea to keep reviewing your portfolio and strategy as you get closer to retirement.
Stress-testing your plan is a great way to make sure you’re prepared for any bumps along the road. You don’t need fancy software to do this—just use conservative estimates for returns and expenses to see how things might play out under different conditions. Like Jim and Pam, this will help you enjoy a comfortable and secure retirement, no matter what life throws your way.
Beyond the Numbers: The Life Planning Side of Retirement
While managing your money is a big part of retirement, it’s just as important to plan for how you’ll live your life. Let’s look at some personal steps that will make your retirement both fulfilling and stress-free.
6. Create a Bucket List
This is where you get to dream big! A bucket list is more than just a fun idea—it’s your opportunity to prioritize experiences and goals that you’ve always wanted to pursue but never had the time for. It could be anything from visiting all of Canada’s national parks to learning how to play an instrument or even writing a memoir.
Retirement is the perfect time to focus on personal growth, adventures, and giving back. Maybe you’ve always wanted to start a community garden or volunteer for a cause you care about. Writing these goals down makes them feel more real and gives you something to look forward to in your retirement.
7. Update Your Estate Planning Documents
No one likes to think about estate planning, but it’s essential. Keeping your will up to date ensures that your assets go exactly where you want them to. It’s also crucial to assign a power of attorney—someone you trust to make decisions about your finances or healthcare if you’re unable to.
Also, take a moment to review your beneficiaries and successors on accounts like RRSPs, TFSAs, and life insurance policies. Life changes—like marriage, divorce, or the birth of a grandchild—might mean it’s time for an update. Tom, for example, realized his ex-wife was still listed as a beneficiary on his life insurance—definitely not what he wanted! Making sure these details are current can prevent major issues down the road.
8. Prioritize Regular Health Check-Ups
Your health is the foundation of a happy retirement—without it, money means little. Make it a priority to schedule annual check-ups with your doctor to monitor vital signs like blood pressure and cholesterol.
Stay up-to-date with essential screenings such as mammograms, colonoscopies, and bone density tests to catch potential issues early. Don’t overlook dental and vision appointments, as maintaining these can significantly enhance your quality of life. If you have chronic conditions, work closely with your healthcare team to manage them effectively. Taking proactive steps with your health ensures you can enjoy your retirement fully and worry-free.
9. Consult with Professionals if needed
Let’s face it, retirement planning can get complicated, but you don’t have to go through it alone. Professionals can help guide you through the process and keep everything on track. A financial planner can fine-tune your strategy, ensuring you’re making the most of your resources and investments. Tax advisors can help you navigate any changes in your tax situation, keeping more money in your pocket. And don’t forget legal experts—they’ll make sure your estate plan is sound and aligns with your wishes.
At Blueprint Financial, we’re here to make the journey easier. Whether you need help refining your retirement strategy, managing your taxes, or coming up with your estate plan, we’re ready to assist. Check out our services on this website, and book a free consultation when you’re ready!
