If you are close to retirement, you’ve probably looked at different options and accounts already. But even if you are in your early 30s, it is never too early to think ahead and plan for retirement.
How much you’ll need to retire depends on your goals, lifestyle, spending habits, income level, household size, and other factors. If you have outstanding balances, whether consumer, student, or mortgage loans, it is a good idea to repay all balances before retirement. You may want to visit your local bank or credit union to check whether early prepayment is an option or your loan comes with a prepayment penalty. The age at which you expect to retire is another issue to factor in. While the average age is 67, this is basically a personal decision that depends on factors such as level of indebtedness, unforeseen circumstances, and of course, choice. Look at your income and expenses to see whether you tend to overspend or live within your means. This is also a good way to estimate how much you can save annually. Finally, there are other factors to consider, including income replacement, additional sources of income, annual salary growth, expected rate of return, life expectancy, and the age you started working and saving, respectively. This will help you to find out whether you are moving in the right direction or need to cut certain expenses or increase your income.
There are plenty of alternatives to consider, depending on your age, risk profile, and so on. You may choose from different high- low-, and medium-risk investment vehicles to build a diversified portfolio. Low-risk solutions include government bonds, cash in your savings account, certificates of deposit, and others. If you are more of a risky type, there are other vehicles to look into, including forex trading, futures and options, microcap stocks, cash value life insurance, precious metals, and others. The choice of investment vehicle depends on your savings, charges and fees assessed, and your goals and needs. In addition, there are solutions that are specifically designed to meet your retirement objectives. You can choose from a range of options, including registered retirement savings plans, guaranteed income supplement, CPP pensions, Old Age Security, and others.
Tools to Use
There are easy-to-use online calculators that help calculate how much you will need. Just enter figures such as the annual yield on balance, annual inflation, and number of years required after and number of years until retirement. For example, if you need an annual income of $45,000, have 15 years left before retirement, and will need about this amount for 20 more years, then you’ll need a total of $6,841,441.06 at a rate of inflation of 2 percent. There are other handy calculators to plug in your retirement and current age as well as your savings rate, current income, and amount saved so far. This will show you whether you are on track or how much you are falling short so far.