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January 31, 2025
Top tips on retirement savings.
Top tips on retirement savings.
Our expert responds to frequently asked questions.
5-minute read Whether you’re starting or wrapping up your career, the subject of retirement raises numerous questions. How much do you need to save to maintain your current lifestyle? How much to be able to travel or pursue your passions? And where do you begin? Laurentian Bank Strategic Advisor and Financial Planner, Koffi Gbeglo, puts things into perspective when it comes to the subject of retirement savings.
1. At what age should we be preparing a detailed retirement plan?
“Ideally, starting at age 30. In fact, the earlier the better!” emphasizes Koffi Gbeglo. One’s career, family and financial situation often become more stable in our 30s. That is when people gain a better understanding of their personal finances. It’s also when they still have time to adjust their saving strategy in accordance with their plans and aspirations. What’s important is to start saving early to be able to enjoy a more comfortable retirement, even if it may seem quite far off yet. Here is a good example:
Caroline, 30 years old
Annual income: $60,000 Expected retirement age: 65 Retirement income goal: $42,000 (or 70% of her current income) Value of current investments: $0 Caroline could achieve her retirement objective by putting aside approximately $407 per month and obtaining an annual return of 5% until age 65. If she only started to save at age 40, she would need to set $754 aside monthly, while after 45, she would need to save close to triple that amount — or $1,153 per month.
2. What are the principal elements of a retirement plan?
“A retirement plan compares the current situation with the situation desired at retirement. The plan then proposes the actions required to get there,” explains Koffi Gbeglo. More specifically, a retirement plan is based on the following elements:
Current expenses and revenues
Planned retirement age
Estimated cost of living at retirement
Regular retirement income (i.e. defined retirement benefits from an employer, government pensions)
Estimated value of existing investments at retirement
Additional amount to be saved leading up to retirement
A retirement plan should be reviewed each year to ensure that it remains relevant, but also after each important life change. “A salary increase, marriage, divorce, arrival of a newborn, purchase of a home, or an unexpected inheritance can change everything,” underlines Laurentian Bank’s expert.
3. How much do you need to save to assure a comfortable retirement?
“By saving between 10% and 18% of your revenues, you have an excellent foundation that can be adjusted in accordance with your retirement plan,” proposes Koffi Gbeglo. Any employer contribution to a retirement savings plan can lighten the load with respect to the amount to be invested personally. What’s important is to start with at least what one’s budget can permit, and then to make the necessary adjustments along the way. That’s where your advisor can really offer an added value. In Caroline’s case, saving 8% of her revenue could be sufficient if she starts at the age of 30. This proportion would rise to 15% at age 40, and to 23% if she were to wait to start saving until the age of 45. Accumulating sufficient capital also allows for delaying when you begin drawing benefits from the Quebec Pension Plan (QPP) and the federal Old Age Security (OAS) Pension, which, in turn, will augment the amounts you will be entitled to receive later.
4. Is it more beneficial to prioritize RRSP or TFSA contributions?
Registered Retirement Savings Plan (RRSP) contributions serve to reduce taxable income, but any withdrawals are taxable. When it comes to the Tax-Free Savings Account (TFSA), contributions are not deductible from taxable income, but withdrawals are not taxable. Consequently, the choice depends on everyone’s individual tax situation. “We tend to prefer the RRSP if the tax rate when making contributions is higher than the rate when withdrawing amounts saved,” explains Koffi Gbeglo. This applies to people who anticipate lower earnings after retirement. For those starting out on their careers or just finishing their studies, it would be more advantageous to delay the deduction of income until after a salary increase. Note: Individuals 72 years of age and over can no longer contribute to their RRSP. They have until December 31 of their 71st year to transfer their RRSP into a RRIF (Registered Retirement Income Fund). In their case, the RRIF is the option of choice, regardless of their income.
5. What constitutes a simple and sustainable saving strategy?
“Saving via automatic savings is the best way to pay oneself first,” suggests Koffi Gbeglo. “This method allows for the development of good saving discipline throughout the course of one’s career.” Like automatic salary deductions, a portion of your pay should be allocated directly toward retirement savings so you can enjoy a worry-free retirement.
6. What should we be investing in for retirement purposes?
“Mutual funds stand out as solid and flexible investment solutions that offer positive performance in the long-term,” indicates Laurentian Bank’s financial planning expert. Laurentian Bank offers a variety of mutual funds adapted to all investment profiles — from the most prudent, to the boldest. Discover the world of mutual funds
Do you participate in your employer’s pension plan?
A pension plan whereby your employer matches your contributions provides you with a head start toward achieving your retirement savings goals. “If you invest $100 per paycheque, for example, and your employer matches that amount, you benefit from an immediate return of 100% on your saving,” concludes Koffi Gbeglo. “That’s certainly hard to beat!”
Deepen your understanding with valuable advice and articles from our dedicated retirement planning page. Plus, you can take advantage of Laurentian Bank advisors’ expertise to help you create a customized retirement plan.
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