Five years before retiring is the perfect time to build a concrete retirement plan. Many people arrive at this stage with all kinds of questions: Will I have enough money? When can I really retire? How do I go about it? These questions are completely normal, and the good news is that there's still time to act.
Don't panic, let's take it one step at a time. To start this new chapter with serenity and confidence, here are 8 things you can do when you're fewer than 5 years from retirement.
01 Assess your current financial situation
To know where you're going, you need to know where you are. Start by getting a complete picture of your financial health by calculating your net worth:
Assets (what you own)
- Retirement savings (RRSP, TFSA)
- Properties
- Investments
- Surrender value of insurance
Minus liabilities (what you owe)
- Mortgage
- Car loan
- Personal loans
- Credit card debt
Why is this calculation essential?
Comparing what you own with what you owe provides a clear picture of your situation. It will help you measure progress, adjust your savings strategy, spot imbalances (such as too much debt or poorly distributed wealth), and make better decisions in those last five years before retirement.
02 Identify sources of income during retirement
Money will come from several sources rather than a single salary. Take a moment to write them down to avoid any surprises later. Your income will generally come from three sources:
a) Public pensions
The Québec Pension Plan (QPP) and Old Age Security pension (OAS) will be a basic safety net. Everyone is entitled to this based on their years of contribution.
Good to know
Did you know that you can apply for your QPP as early as age 60 or defer it until age 70? The choice you make will impact the amount you receive. Take some time to understand these mechanisms and optimize your retirement income.
Points to consider
- Applying for your QPP before age 65 will reduce your monthly benefit amount
- Postponing it until after age 65 will increase it
- Base this decision on your health and immediate financial needs
b) Employer-sponsored plans
Pension plan or group retirement plan: Employer-sponsored plans are a valuable retirement resource. Consult your annual statement to find out how much you should be receiving.
c) Personal savings
Your RRSP, TFSA, and other investments represent the fruit of your hard work. They're also the assets over which you have the most control. You will have until the year you turn 65 to contribute to an RRSP+ by subscribing to Fonds shares and benefit from an additional 30% in tax credits.[1] Reinvesting these tax savings can give your savings a valuable boost.
Read your statements to get an accurate picture of what lies ahead.
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03 Maximize pension contributions
If you have access to a retirement plan at work (defined contribution pension plan, group RRSP, etc.) and your employer tops up your contributions, make sure to contribute as much as possible. Employer contributions are part of your total compensation package, so don't leave this money on the table. This is one of the most effective ways to boost your nest egg in the home stretch.
04 Simulate your retirement expenses
How much will the life you're aiming for cost? This is often the big question. A rule of thumb commonly used in planning suggests that you'll need around 70% of your gross annual working income to maintain the same standard of living in retirement.
Example
If you earn $60,000 a year, aim for approximately $42,000 in gross annual income (before taxes) at retirement.
Why less than 100%? Because some expenses, e.g., union dues, pension contributions, mortgage payments (ideally!), and commuting costs will decline or disappear.
Don't forget the rising cost of living
Some unavoidable expenses will continue to grow over time, which is to be expected. That's inflation. It would be wise to work some leeway into your retirement budget to account for these increases.
Good to know
My Game Plan takes into account the rising cost of living in its calculations, so you get a realistic view of your long-term needs!
05 Reduce debt
Your ultimate goal should be to enter retirement with peace of mind and a debt-free portfolio. Prioritize paying off credit cards and other high-interest debts. Next, tackle personal and car loans, then your mortgage.
The fewer fixed monthly payments you have to make, the more flexible your budget will be for leisure activities and unforeseen events.
06 Review your investment strategy
Five years from retirement, your risk tolerance is probably not the same as it was at the start of your career. It may be a good idea to secure part of your earnings, while keeping in mind that your investments must continue to outpace inflation. Contact your advisor to see if it's time to rebalance your portfolio.
Be sure to maximize use of registered accounts (RRSPs and TFSAs) to take advantage of tax benefits.
07 Clarify your life projects
Retirement isn't just about numbers, it's about time. A lot of time. What are you going to do with it? Now's your chance to figure out what's important to you.
Would you like to garden? Look after your grandchildren? Volunteer? Take courses? Clarifying these projects will help you determine their costs and integrate them into your financial plan.
Need some inspiration? Find out how others have shaped this stage of their lives in our web series Building Your Retirement.
08 Take a course on preparing for retirement
Preparation is not just financial, it's also psychological. Leaving the job market brings major changes to identity and social status.
Ask your employer or financial institution. Many offer seminars or courses covering not only legal and tax aspects but also psychosocial adaptation, time management, and health. It's a great way to prepare positively for the changes to come.
Take action now
Five years goes by quickly, but they can make a real difference in the quality of your future retirement. Taking these steps today can provide the peace of mind you need to enjoy tomorrow to its fullest.
Need guidance? We're always here to help! Log on to your online account to use My Game Plan or contact a FlexiFonds mutual fund advisor to discuss your plan.
We can't wait to see your dreams come true!
