Planning your retirement may not seem like a priority when you’re under 30 and trying to save to buy your first home. However, you should really make saving for retirement a priority in your early thirties (or early forties at the very latest), as time is your best friend when it comes to saving large sums of money.

After all, a well planned, smooth, and comfortable retirement is what everyone hopes to achieve and is worth prioritizing as early as possible. Younger generations are increasingly focused on their personal wellbeing, travelling, and enjoying life. But how do find the balance between work and play, between the industrious ant who toils all summer storing food for the winter and the grasshopper who enjoys a leisurely life, but has nothing saved for retirement?

By planning your retirement as early as possible, you can avoid the stress of having a seemingly insurmountable climb ahead of you. When we start saving at a younger age, it’s much easier put a little aside each paycheque than it would be if we wait until the last minute, like the grasshopper.

In the following article, we’ll look at the four main steps you need to take to create a tailored retirement strategy and the best long-term strategy to get you there.

Step 1: Identify sources of retirement income

 As financial planners, our priority is to manage the risk of longevity, i.e., to make sure that you won’t outlive your money in retirement. That’s why it’s important to identify your potential sources of income, first.

There are several available sources of income, and these vary from person to person:

  1. Sources of income from the government
    • Quebec Pension Plan (QPP) (provincial)
    • Old Age Security (OAS) (federal)
    • Guaranteed Income Supplement (GIS) (federal)
  2. Sources of income from your employer
    • critical illness insurance
      • Defined contribution plan
      • Defined benefit plan
    • Group RRSP
    • Deferred Profit Sharing Plan (DPSP).
  3. Personal savings
    • RRSP 
    • TFSA 
    • Critical illness insurance
    • Reverse mortgages
    • Annuities
    • FHSA*
    • Sale of income-generating assets, such as an income property or a business
  4. For business owners
    • Dividends 
    • Sale of an operating company
    • Trust income
    • Life insurance
    • Critical illness insurance
    • Repayment of shareholder loan
    • Individual Pension Plan (IPP)
    • Personal Pension Plan (PPP)

*A FHSA is not seen as a retirement accumulation vehicle, but for some, depending on their age and ownership criteria, it could be used as an alternative retirement strategy.

Step 2: Determine your retirement goals

You need to determine how much income you’ll need. Depending on how much time you have left before you retire, you can estimate the cost of living required in several ways:

  1. When your retirement is more than 15 years away
    • Use the 70% rule, AKA the “rule of thumb calculation”
      • Take the average of your last 3 years of employment, and 70% of your after-tax salary during those years
      • *Note: Your salary or standard of living may be different as you approach retirement, which is why this calculation works for people who will retire in more than 15 years
  2. When your retirement is 5 to 15 years away
    • Use the tax method
      • Here, you’ll calculate the expenses you’ll no longer have once you retire
      • Employment-related expenses
        • Public transit, work clothes, etc.
      • Mortgage payments
      • Childcare expenses
        • Education, food, etc.
      • Once you’ve calculated these, you can deduct them from your monthly expenses to get an idea of the approximate amount you’ll need to retire.
  3. When your retirement is less than 5 years away
    • Create a detailed budget
      • Determine your current cost of living
      • Include necessities related to your activities, your health, etc.
      • Consider adding personal insurance

The more time passes, the more planning becomes specific. It’s important this exercise be done in a way that is completely transparent. Not telling the whole truth at this stage could work against you. For example, if you say you’ll only need $50,000 when you retire, but you actually need more than that, the distortion in the data will only harm you. So it’s important to be realistic about your savings goals and the cost of living you’ll need in retirement. What’s more, the sooner you start this exercise and the sooner you start saving, the easier it will be to reach your goals.

Step 3: Calculate your cost of living and savings capacity

You need to know how much you’re realistically able to save per year, and whether or not your retirement goal is realistic. This involves calculating your current cost of living, and subtracting it from your income. The result of this subtraction will give you the amount of cash you have available to put towards your savings.

  1. Calculate the cost of living
    • Add up all your expenses
      • Rent/mortgage
      • Food 
      • Transportation 
      • Entertainment
      • Other expenses
  2. Savings capacity
    • Subtract your cost of living from your inputs
      • Input
      • Salary
      • Dividends
      • Social security benefits
      • Other incomes 

This will give you an amount that reflects your savings capacity. You may repeat this calculation several times, as your salary, income, and even your expenses, change. You should do this once every three years, at a minimum. This calculation is not meant to put pressure on you, but rather to determine whether or not your savings capacity matches your retirement goals.

Step 4: Quantify what separates you from your retirement goals

As you’re doing these calculations, you and your financial planner may determine that your current savings capacity will not be enough for you to reach your retirement goals. If that’s the case, there are a few possible solutions:

  1. Delay retirement
  2. Adjust the cost of living you want in retirement downward
  3. Consider finding additional employment in retirement
  4. Accelerate your retirement savings with leveraging strategies
  5. Sell an asset
  6. A mix of all of the above options

*Saving more isn’t always the only way to achieve your goals: it should also be considered as part of an investment strategy that ensures that your investments grow at the same rate as, or faster than, inflation.

Step 5: Draft a retirement plan

Implement savings strategies that suit you, based on vehicles that optimize the family’s accumulation and disbursement plan. It’s essential that you don’t wait until the last minute, and that you be realistic about the current savings capacity specified in your savings plan.

Step 5.1: Choose the right savings vehicles

Now that you know your sources of retirement income, your savings capacity, and the distance between you and your retirement goals, it’s time to choose the investment vehicles best suited to your situation, and to put your savings plan up into action. For many, RRSPs and TFSAs will suffice. Others may be able to consider leveraging strategies and certain tax-advantaged, non-RRSP strategies.

This process may seem long and complex, but we’re here to help you on your journey. Along the way we’ll also help you re-assess your plan and adjust it to your changing situation, so you can find your balance between being a cicada, and being an ant.

To learn more about how to create your own retirement strategy, or to get the financial support you need, please contact or book an appointment with one of our advisors.