Retirement planning: Why it's important to start now
Do you have a lot going on—work, family, friends, projects? Not much time to think about retirement? Does it seem like a long way off? If so, you’re probably in no hurry to start planning for this major milestone.
If it makes you feel any better, you’re not alone! But if there are things you dream of doing after you stop working, Angela Iermieri, Financial Planner1 at Desjardins, gives you 5 good reasons to start planning for your retirement now.
1. Your retirement will probably be longer than you think
Statistics Canada estimates that the average retirement age is now 65.2 And, according to Retraite Québec, retirement will be on average twice as long as it was 50 years ago.3
Needless to say, the longer you expect to live and the longer your retirement, the more you’ll need to save. That’s not even including the extra cushion you should have in case something unexpected happens or you get sick. In short, contributing to your retirement savings for a few years more can make a huge difference!
2. Your pension might not be as generous as you think
Another good argument not to wait too long to start saving for retirement: government pensions might be smaller than you think. Certain factors, like the age at which you want to start receiving your pension, will have an impact on how much you receive.
That means you might receive your full pension only if you wait until age 65 before applying for the Quebec Pension Plan (QPP) and Canada Pension Plan (CPP). And if you stop contributing before that or still haven’t contributed the maximum allowable earnings, you’ll receive a reduced pension.
Did you know?
Government annuities should only make up 20%-40% of your retirement income. You’ll need to rely on your personal savings and on your employer’s supplemental pension plan to cover the remaining portion.
3. You’ll have more time to maximize your savings
For most people, it’s much easier to invest small amounts more often than to invest bigger amounts from time to time. By starting earlier, you’ll realize that saving isn’t all that hard and you’ll make it a habit.
Time is a key factor in retirement planning. If you haven’t already, start saving what you can as soon as you can and increase the frequency based on what you can afford. This habit will also allow you to take advantage of the snowball effect of compound interest—another good reason to start!
In a context of high market volatility, it can be tempting to sell your investments to get rid of bearish stocks. But when your savings are invested for the long term, it’s normal for these amounts to vary based on the ups and downs of the market. The important thing is to stay the course on your investment objectives and to contact your advisor, who can guide you during periods of stock market fluctuations.
4. You’ll reduce your financial stress
Whether or not retirement still seems a long way off, it’s normal to feel a certain amount of stress when you think about it. The best way to address those worries is to stop putting off your retirement planning.
By taking action as soon as possible based on clear objectives and a written plan, you’ll feel calmer and more confident.
5. You’ll be in a better position to maintain your lifestyle
By preparing for your retirement early and starting to save as soon as possible, you’ll have a better chance of maintaining your lifestyle when you leave the workforce.
When you have clear goals and know how much your retirement income will be, you can budget accordingly. And with a retirement plan, you’ll increase the chances of being able to do all those things you want to do.
Unfortunately, the increase in the cost of living is inevitable. You’ll need to take this into account when you plan your retirement. This is all the more important because if you don’t do this, you may outlive your savings. Feel free to seek advice to determine which strategies you can adopt to keep ahead of inflation.
The future belongs to those who start their retirement planning early!
Starting your retirement planning now is the best way to make the most of life later. Talk to your advisor—they’ll be able to give you guidance and support as you prepare for this major milestone.
1. Marketing advisor, mutual fund representative and financial planner for Desjardins Financial Services Firm Inc.