Can’t wait for retirement? You’re not alone. Early retirement has become a lot more common in the past decade. According to Statistics Canada, between 1987 and 1990, only 29% of people retired before the age of 60. By the year 2000, that statistic rose to 43%. While the age of 65 is still a common age to retire, we’re seeing a lot of Canadians become financially stable enough to retire before hitting their 60th birthday.
If you’re thinking about retiring early like so many others, then you’re going to need a plan. Let’s look at some strategies people use:
1. Know Your Number
What kind of money do you need to retire? Simple. Take your projected annual expenses and multiply by 25. Why such a high number? Remember, you’re trying to cover for at least as many years as you’ll be retired. You can adjust this number to reflect your situation more accurately if you need to. Be sure to subtract out what you already have saved so you know more accurately what you need to save right now.
Ideally, you’ve been saving for retirement already. Even if you haven’t, how does your current budget allow you to lay funds aside now for the future? Are you in a position to increase this amount? Are there things you’re spending on now, which could perhaps be cut out to allow for more funds for the future? Exploring these questions will help you figure out just where your money is going, and where you need it to go.
2. Strategize Early
It’s important to start a plan or strategy for retiring early. An effective retirement plan is critical for planning to do whatever you want during the rest of your life. By starting a strategy, you can begin to accumulate assets which will then be used to support your lifestyle during retirement.
3. Don’t Withdraw Quite So Much
If you have an investment portfolio, ideally, you want avoid pulling out more than 4% of the value of the portfolio in the first year to pay all your expenses. Use this number (adjusting for inflation) for subsequent years. By keeping this number low, you’ll hold back more money allowing for a longer retirement.
4. Pay Off Your Debts Early
At the same time, you need to balance your debt. The best plan? Be sure to pay off things like your car and any high-interest loans before you retire. It’s up to you whether you want to still deal with a mortgage or not. If you expect to have debt, be sure to subtract those numbers from your income so you have a better idea of what money you’ll need for the retirement you desire.
5. Diversify! Diversify! Diversify!
One can’t say this enough, especially given how the stock market can shift very rapidly. Don’t use only one investment strategy. Think about bonds as well as stocks, and don’t forget to keep a certain amount in cash. Also, consider many income sources such as a reverse mortgage, passive income through an online business, offering consulting services in your industry, your company pension, etc. You want cash flow coming from as many sources as possible. This is something you’ll want to sit down and discuss with a Certified Financial Planner to determine what’s right for you. Call Pension Solutions Canada at 1-888-554-6661 to chat with a Certified Financial Planner today.
6. Rework Your Portfolio
Some investment plans might not be as practical as others when you hit retirement age. You might want to reconsider high-risk investments or ones that payout far in the future. This is where you need to sit down and talk with a financial planner or investment counselor to make sure you’re getting the most bang for your buck when you need it most.
Don’t leave things to the last minute. After all, you want to enjoy your retirement, not spend it scrambling for the means to get by.
Remember to review your Retirement Plan at least once a year to see if you need to make changes to stay on track! The team at Pension Solutions Canada are here to help make sure you’re set up for success. We specialize in helping individuals prepare for retirement and understand their pension options. Let us assess and review your income streams in retirement and help you with retirement planning. Call 1-888-554-6661 to get started.