The 5 Phases of Pre-Retirement

The 5 Phases of Pre-Retirement

Retirement is one of the most important life events you will experience, and getting it right takes wise planning. With a sound intellectual framework, and some assistance from a qualified professional, you can ensure that you are ready to retire when the day comes.

Retirement preparation can be broken down into five phases, with each phase having its own unique strategy. Regardless of which phase you currently fit into, make sure you have completed the tasks in the previous category before moving on to the next. Here are the key aspects to carry out during the five phases of retirement.

Phase 1: 30 Years Before Retirement

Many people skip this step because retirement seems so far away, and with bills, a mortgage, and kids, saving for this distant period of life seems less important. However, the first step is usually the most important in any strategy, and retirement planning is certainly no exception.

When you’re 30 years away from your planned commencement of retirement, you want to make sure you have some tax-advantaged accounts open and you’re contributing money to them annually. It’s important to save for your short and long term goals, which can be reflected in your investment mix. A TFSA can work well for your short-term goals. Also, take full advantage of your company’s pension plan if one is available.

Phase 2: 20 Years Before Retirement

When you get to your 20-year milestone, be sure to review your retirement accounts and verify that you’re saving enough each month. You’ll want to figure the amount you’ll need when retirement starts and then calculate how much you need to save each month to reach that level.

Now is the time to max out your retirement contributions. In 2019, the maximum yearly RRSP contribution is $26,500. Also, investing in a tax-advantaged TFSA in addition to RRSP will help boost your retirement savings.

A financial advisor can help determine the ideal investment mix to achieve your savings goals while maintaining an acceptable risk level.

Phase 3: 10 Years Before Retirement

When you are in your last decade of saving for retirement, it is time to start rebalancing your portfolio. A financial advisor can help you compile a comprehensive financial profile, assessing all your funding sources to figure out your ideal investment mix to provide income throughout your retirement.

You should also think about drawing up an estate plan, which will include a last will and testament. Probate laws differ from province to province, so check with your trusted estate lawyer to discuss what will work best for you.

This is also a good time to review your tax situation as it pertains to retirement planning.

Phase 4: 5 Years Before Retirement

In the fourth phase, you need to begin thinking about what you want out of retirement. It can help to create a list of your requirements and preferences. Requirements are “must-haves,” like monthly income for living comfortably. Preferences are aspirations that you would like to achieve, but are lower on the list of priorities. This might include major vacations, building education savings accounts for grandchildren, or moving to a warmer climate.

Phase 5: 1 Year Before Retirement

When you are 1 year from retirement, you’ll want to review your current plan and make sure everything is ready.

On a personal level, what will you do with your time in retirement? Now is a good time to take a look at how you might expand on your hobbies, interests, recreation, and charitable endeavors.

From beginning to end, the tax, legal, and financial aspects of retirement planning are complicated for just about anyone. If you need any assistance along the way, please contact us to see how we can help.