If most people had their choice, they would prefer to retire before age 65 or while they can enjoy their free time. Unfortunately, not a lot of them are preparing financially for it. If your goal is early retirement, you need to start planning to make it work financially. You may need to save more, spend less or take other steps to ensure you are on track.
Define what early retirement means to you.
Everyone has a different idea of how they picture their retirement. What’s yours? Take some time visualizing how you want to spend the next phase in your life.
- When do you want to retire?
- Where do you want to be living?
- How do you want to be spending your time?
- How much will it cost?
What income will you be able to bring in at your earliest desired retirement date?
- Will you be able to collect your company or government pensions at your desired retirement date? If so, how much income will this be?
- If not, will your other sources of income (investments, rental, etc.) be enough to cover your income needs?
- If you have a shortfall, are you willing to take other steps to achieve your desired early retirement date (work part-time, spend less and save more now, reduce your desired retirement lifestyle and costs)?
- Are you willing to reconsider your desired retirement date?3. Do you have a retirement plan in place?
Knowing the answers to the above questions means you are well on your way to having a plan in place. Meeting with a financial planner is the best next step.
A financial planner will go through the above questions and answers with you, gather all your personal information and will make a plan to help you achieve your financial goals. If a realistic and doable plan is created and implemented and you stay the course, then achieving your desired early retirement is a feasible goal.
Helpful Tips for an Early Retirement
Start when you are young.
How young is young enough to start preparing for early retirement? How old are you right now? Today is the perfect day to start preparing for retirement. If you started in your 20s or early 30s, it means you will be further along on the road to reaching your goals. If you are getting off to a later start, you have some catching up to do, but the point of getting started now still holds true.
Make small, regular contributions.
If you treat your RRSP contributions like a bill, you will find it easier to keep up with them. Set up an automatic deduction at each pay period in an amount you feel comfortable with.
Ensure you participate in your employer pension plans or ESOP programs.
If your employer offers any type of savings programs in which they will match your contributions, be sure to take advantage of this benefit. It’s an easy way to grow your investment.
Invest conservatively for the long haul.
Many young investors take a very aggressive approach when choosing savings vehicles for their retirement savings. They want to make a killing in the market and make big money quickly. A much better approach is to take a slow but steady approach to investing, as opposed to going for the big gain, panicking when the market corrects and taking a loss by jumping out. Your financial advisor will ask you some questions to determine what level of risk you feel comfortable with and recommend a mix of investments that will fix your profile.
Increase your level of savings as often as you can.
Will you receive an income tax refund this year? Are you expecting a salary increase or a bonus from work? Try to invest at least half of this money in your RRSP. If you pay off a loan or other debt, use a similar percentage of your increased cash flow toward increasing your retirement savings.
Review your retirement savings regularly.
Sit down with your financial advisor at least once a year to review your investments. You’ll want to discuss any changes in your life and how they affect your money situation. Have you gotten married, had a child, bought or sold a house? How secure is your job? Do you feel good about your marriage? Will your children be starting or graduating from college or university soon? All of these factors need to be discussed with your financial advisor.
Make plans to transition from worker to retiree.
You will need to make a plan to move from earning a salary to drawing from your investments, Canada Pension, and Old Age Security. Your financial advisor can help you see what those numbers would look like if you wanted to retire at different ages so you can make the decision you feel comfortable with.
As an experienced financial advisor, part of my job is to listen to clients describe their dreams for retirement and when they would like to achieve them. We work together to make them a reality.
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