Three years before retirement is a pivotal time. Retiring is far enough away to make major adjustments but close enough to see the finish line.
What should you prioritize in this final sprint? How can you be sure nothing is forgotten so you leave the job market with peace of mind? Here are 8 essential actions to take right now to move forward with confidence.
01 Update your retirement plan (for real!)
You probably ran simulations 5 or 10 years ago, but your reality may have changed since then. Your income, expenses, inflation, and ambitions have certainly evolved. With three years to go, it's time for precision.
Take a moment to revise your plan so that it reflects your current life:
- Adjust data: Have you paid off your mortgage? Are the children financially independent? Have you inherited money or had to spend it helping a loved one?
- Clarify your retirement age: Is it still 60? Or maybe you want to push back retirement to maximize certain pensions?
Ask yourself important questions now:
- Do I want to stop working all at once or gradually?
- Do I plan to travel or spend my winters elsewhere?
- Is it realistic to retire at my desired age given today's cost of living?
Did you know?
Phased retirement is often an excellent way to transition to your new reality. Slowly reducing your working hours while still earning some income eases pressure on your savings during these crucial final years.
Your retirement helper
Want to know if you're on the right track or need to recalibrate? My Game Plan is a simple and intuitive planning tool. In just a few clicks, estimate retirement income and identify gaps between your project and reality.
02 Understand employer pension plans
An employer-sponsored pension plan will often be the cornerstone of future income, but do you know the fine details of your contract? Don't take anything for granted.
Contact human resources or your pension administrator to obtain an up-to-date, official statement.
Look for three key pieces of information:
- Estimated pension: What will the exact monthly amount be if you leave in 3 years?
- Indexing: Will your pension be adjusted to the cost of living? If not, your purchasing power is likely to diminish over time.
- Penalties for early departure: This is a critical point. Many plans penalize leaving before a certain age (e.g., 60 or 65) with a permanent pension reduction. Find out exactly how early departure would impact your monthly payment.
03 Optimize investments
Soon, you won't just deposit money into your investments, you'll also withdraw it. Adapt your investment strategy to generate cash when you need it. Talk to your advisor to find the right balance. You'll need to protect assets but also maintain growth to counter inflation during a retirement that could last 25 to 30 years.
04 Boost savings one last time
These are your last years earning a full salary. If your finances permit, this is the ideal time to maximize RRSP contributions. Your tax rate is probably higher today than it will be in retirement, so every dollar deducted now pays off.
Check for unused contribution room on your Canada Revenue Agency (CRA) Notice of Assessment.
Did you know?
An RRSP+ at the Fonds de solidarité FTQ remains a powerful tool during the home stretch. Take full advantage of an additional 30% in tax savings[1] on top of the standard RRSP deduction by subscribing to Fonds shares.
Important: You will no longer be eligible for labour-sponsored fund tax credits as of the year you turn 65. Benefit from them while you can!
05 Build a retirement emergency fund
We often talk about needing an emergency fund for unexpected events. Retirement is no different. A leaky roof, car repairs, and uncovered health care costs are unpredictable.
If you need to withdraw $10,000 from your RRSP in a hurry, you'll be taxed right away and could pay dearly. This is why you need liquid assets. Specialists often recommend keeping the equivalent of 3 to 6 months' basic expenses in a safe, liquid account (such as a high-interest savings account or TFSA).
Knowing you have this cushion will help you sleep soundly without fear of the unexpected.
06 Fine-tune your withdrawal strategy
People tend to neglect this step. When you retire, you'll draw from several sources of income: QPP, Old Age Security pension (OAS), pension funds, RRSP, TFSA, etc. In what order should you use them to minimize your tax bill?
Exploring tax strategies today can save you thousands of dollars:
Postponing public pensions: You can apply for a QPP pension as early as age 60, but payments will increase for each month of postponement until age 72. Is it to your advantage to wait and live off your RRSPs between the ages of 60 and 65?
Income splitting: If your spouse earned less in a given year, pension income splitting can reduce your tax bill as a couple.
Consult your advisor to determine which strategies are right for you.
07 Put your papers in order
It's best to prepare for "just in case" when everything is going well. Take advantage of this transition period to update legal documents. This will make things easier for loved ones if the unexpected happens.
Legal checklist:
- Will: Is everything up-to-date? Does it reflect your current family situation?
- Protection mandate: Have you designated someone to look after you and your property in the event of incapacity?
- Advance medical directives: Are your wishes clear?
- Beneficiaries: Check the designated beneficiaries on your life insurance policies and pension funds. An ex-spouse may still be listed by mistake!
08 Prepare the person, not just the saver
Retirement isn't just an Excel file. It can disrupt your identity and social status. Going from a busy work schedule to total freedom can be dizzying.
With three years to go, start "practising" for retirement:
Relationship: Talk to your spouse. Do you share the same vision? Does one of you want to sell the house and move into an RV, while the other wants to keep the house for visits from grandchildren? It's time to get on the same page.
Social network: Cultivate friendships outside of work.
Projects: What new challenges will you tackle? Learning a language, volunteering, sports? Start these activities now to ensure a smooth transition.
Health: Invest in yourself. Adopt healthy lifestyle habits today to enjoy an active retirement for as long as possible.
You're almost done!
Three years is a short time, but it's long enough to make a difference. Keep going! Every action you take today, whether financial or personal, will bring you closer to that cherished freedom.
We're here to help as you take this final step! Whether you want to optimize investments or plan withdrawals, our FlexiFonds mutual fund advisors can help. Together, we'll make sure you cross the finish line with your head held high and mind at ease.
