Cash flow planning is the foundation of a fully comprehensive financial plan that includes your retirement years. As with any component of a financial plan, the sooner you start, the more effective your plan will be.
The number of companies providing defined benefit pension plans, or even defined contribution pension plans and Group RRSP alternatives, continues to decline. As well, the frequency of employees changing jobs has been on the increase for years. Therefore, increasingly, the onus is on individuals to provide for their own retirement.
So, what do you do if you do not have a company pension plan? There are several strategies and vehicles to help you save for your retirement. The key is to have a plan and to start as early as possible.
Like many, your RRSP (Registered Retirement Savings Plan) may be your primary pension savings vehicle, especially with fewer and fewer employers providing defined benefit pension plans. On conversion of your RRSP to a RRIF (Registered Retirement Investment Fund), your RRIF may become your primary source of retirement income.
An RRIF can be thought of as an extension of an RRSP. While your RRSP is used to save for your retirement, an RRIF is used to provide income during your retirement.
After spending years investing for your retirement, you will be able to finally enjoy the benefits of your savings.
Like employment income, retirement income is generally taxable.
For most people, retirement means a decrease in income resulting in a lower income tax bill. Even so, it is still advisable to carry on with your financial plan, including tax planning, adjusted accordingly for retirement.
Even if retirement seems like it is far off in your future, it is never too soon to begin retirement planning to optimize your financial position in your retirement years.
Retirement planning includes determining your time horizons, creating a spending budget, tax planning, establishing your risk tolerance, and estate planning, which should all be integrated into a fully comprehensive plan with the help of a financial professional. Below we outline four tips to help in planning for a financially stable retirement.