If you plan to retire you should have a retirement plan. There are a number of things you can do that will allow you to achieve your goal.
Basically what it boils down to is saving as much as possible without compromising your current lifestyle and also being very tactical in terms of taxation and paying down debt.
The two most common reasons why Canadians struggle to build wealth or retire early are: Paying too much tax and paying too much interest. Here are a few strategies to put in place:
If you have not done so already find a financial planner to build you a customized financial plan based on your personal goals.
Once you have a plan be sure stick to it. Try to review your plan on an annual basis to see if you are on track.
Pay off debt as fast as you can and consolidate all your outstanding debt at a lower interest rate. Many people have debt spread out at different institutions at different interest rates to satisfy the psychological issue of “sticker shock,” they would rather make smaller payments to different institutions than one payment to a single institution even though they are paying more interest on an annual basis.
Take on good debt not bad debt. Rather have a larger mortgage and a smaller car loan, in the long run this will make a huge impact on your net worth. One question that you should ask yourself every time you make a large purchase is: “Will what I am buying today appreciate or depreciate over time?”
I see too many people with smaller homes but fancy cars or trucks.
Save what you can by investing in an RRSP if it makes tax sense for your situation. What I mean by this is that your tax rate while working should be at least 10 per cent higher than when you retire to make your RRSP effective.
Consider opening a tax free savings account to enjoy tax free growth. Tax free savings accounts can be used to compliment your RRSP or as a standalone investment.
Make sure your net worth is well diversified in real estate, equities, bonds, GICs and cash.
A good way to measure success is to calculate your net worth annually, as long as this number is going up each year you are making progress.
Do not take on more risk than what your personal risk profile dictates.
Remember that a good retirement plan will incorporate risk management; these are the things that can derail your ability to earn income and achieve that retirement goal. Your financial plan should incorporate protection for the unfortunate eventualities of getting sick or becoming disabled. The tools used here are critical illness insurance and disability insurance respectively. Remember to consult your financial advisor before taking any action.
Written by Stuart Kirk, CIM
Stuart Kirk is a Retirement Planning Specialist with Precision Wealth Management Ltd. The opinions expressed are those of the author and may not necessarily reflect those of Precision Wealth Management Ltd. For comments or questions Stuart can be reached at stuart@precisionwealth.ca or 250-954-0247.
