Planning for retirement involves more than funding your pension or having RRSPs to ensure your retirement income will last and allow you to enjoy every part. As your retirement will be one of the most important financial goals you will undertake, there are some retirement planning mistakes you should avoid.
Retirement Planning Mistake #1: Having No Plan
According to the results of the Canadian Payroll Association’s 12th Annual Survey of Working Canadians, 52% of workers are nervous about their ability to retire. While this can be for several reasons, not knowing how much they will need for retirement is a big one.
When it comes to your RRSPs, failing to plan is the same as planning to fail. The truth is most people spend more time planning their annual vacation than they do their retirement – the longest vacation they will ever take!
Retirement Planning Mistake #2: Not Saving Enough
There is a saying in the retirement planning realm: ‘You are either saving for retirement today, or you are spending your retirement today.’ Put simply, if you don’t save it – it won’t be there later. And it can apply to many of the purchasing decisions we make.
An excellent example of this situation involves your car. Do you upgrade your vehicle to a newer model now, or do you stretch the lifespan of your vehicle with a few repairs so you can enjoy purchasing a new car in your retirement? A few minor inconveniences today can compound over time into a comfortable retirement tomorrow.
Retirement Planning Mistake #3: Not Starting to Save Early Enough
Many people make the mistake that they will have plenty of time to save for their retirement, especially when they are younger. When you are in your 20s – retirement feels like forever from now. But life events (like as buying a house, having kids, etc) will quickly pile up, and before you know it, you are in your 50s and have yet to start to save.Â
Procrastinating about retirement planning is a wealth death sentence. The most valuable asset you have when saving for retirement is time, as the earlier you invest – the more compound interest you will build!
We wrote a previous blog explaining the power of compound interest and investing at any age, which you can read for more information.
Retirement Planning Mistake #4: Relying solely on CPP / OAS or Company Pension
Another common mistake made too often is relying on someone else to take care of your retirement planning. Depending on your age, the number of years to retirement, and the company you work for, you may want to take your retirement planning into your own hands. If not, you risk being in for an ugly surprise by not being prepared for retirement.
Many traditional defined benefit pension plans can be underfunded and are more often than not being converted to defined contribution plans – which ultimately can pose a risk to your retirement income. One of the best ways to avoid being unprepared is to take retirement planning into your own hands.
Retirement Planning Mistake #5: Not Maximizing Your Tax Deferrals
This mistake has to do with your RSPs & TFSAs.
The Government of Canada has created a few tax incentives to encourage individual savings. However, not utilizing these tax incentives to maximize your advantage is a mistake. For example, making RSPs/TFSAs/Pension contributions can be used to claim some or all of your contributions as a deduction on your tax returns, saving you money each year you contribute!
Retirement Planning Mistake #6: Spending Too Much – or Too Little.
In life, you will have some control over when you retire. However, no one has control or very little control over when they will pass away. And unfortunately, when you don’t plan out your retirement, you will regret the ‘death’ of your savings before you are ready to.
There are two types of people commonly seen in retirement: those who are too scared to spend money and those who spend too much early on in what is called the ‘Honeymoon Phase.’
The Honeymoon Phase is the early years of your retirement – when you have just finished working and want to travel and do things. This is also typically when you are still mobile enough or ‘young’ enough to do the activities you want to physically. It gets harder to move about as we age, and expenses like health care or prescriptions become more costly.
Retirement Planning Mistake #7: Underestimating Health Care Costs.
It is also essential to think about what future medical expenses you may have in your retirement plan, as some costs may not be covered by your benefits package if you have one.
In addition, employers are increasingly eliminating retiree health coverage, so you can’t assume you will automatically be covered by your employer or the government health care system.Â
Retirement Planning Mistake #8: Believing You’ll Want to Work Forever – or Not At All.
Some people plan to continue working part-time or through a secondary career within retirement to stay productive, involved, and connected to their community. Working might make sense for these people, but only for as long as they want.
Whether or not you want to work in your retirement, you don’t want to be forced into working because you didn’t save enough to afford not to. So when planning your savings and retirement, that income needs to be financially secure. That way, the income you earn during retirement can be treated as a nice bonus that adds to your lifestyle and not just your wallet.
Many people will make these common mistakes when it comes to retirement planning. Not starting early, not saving enough, or needing more financial literacy to make good investment choices can make you fail in your retirement planning – but it can be a different way.Â
Working with a financial planning professional, like our Integris Wealth Management Services team, can help you determine what savings options are best for you, how to determine how much you will need, and what incentives will help maximize your contributions. You may even make a lifelong friend from it as well!
Don’t wait to make these mistakes when it comes to your retirement planning. Even if you are in any stage, any age, and any wage – pop on by and chat with us about your financial future, or book an appointment. Your future self will thank you later.
