What Is Retirement Planning?
Retirement planning defines retirement income goals as well as the actions and decisions necessary to achieve them. Retirement planning helps identify sources of income, predicting spending, creating a savings plan, and managing assets and risk. Future cash flows are anticipated to determine whether the retirement income goal will be attained. Depending on whether you live in the United States or Canada, which has its own system of employer-sponsored retirement plans, some retirement plans differ.
Planning for retirement should ideally be a life-long process. You can start whenever you like, but it will be most beneficial if you include it in your financial planning from the beginning. The most successful technique for ensuring a safe, secure, and joyful retirement is to do just that. The enjoyable side is why it’s critical to focus on the serious (and even tedious) phase of the process: determining how you’ll get there.
Let’s take a look at Old Age Security (OAS) Retirement Plan:
Old Age Security is a taxable monthly payment programme for seniors in Canada that is funded by general tax revenue. You must be at least 65 years old, a Canadian citizen or legal resident at the time your OAS application is granted, and have lived in Canada for at least 10 years since the age of 18 to be eligible for payments. When you turn 64, Service Canada will send you a letter confirming your enrolment. You’ll have to apply if you don’t receive the letter.
You must have lived in Canada for 40 years to obtain the maximum payment ($615.37 per month in 2021). You can still get a partial benefit if you haven’t resided in Canada long enough to be eligible for the maximum amount.
If you earn a lot of money in retirement, you’ll have to pay a fifteen-cent recovery tax on every dollar you earn over a certain amount. This OAS “clawback” applies to everyone with a net income of more than $77,580 in 2019, up to a maximum of $126,058, beyond which you will no longer be eligible for OAS.
Canadians normally receive their first OAS payment the month after they turn 65, but you can choose to wait until you’re 70 to receive benefits. Delaying your OAS payment by one month raises your monthly benefit by 0.6 percent. Your monthly payment will increase by 36% if you wait a maximum of 60 months before collecting OAS.
Stages of Retirement Planning
The following are some tips for successful retirement planning at various phases of life.
Young Adulthood (Ages 21–35)
Those just starting out in adulthood may not have a lot of money to invest, but they do have time to let their investments mature, which is an important part of retirement planning. This is due to the principle of compound interest.
Compound interest means that interest earns interest, and the longer you have, the more interest you’ll earn. Because of compounding, even if you can just put aside $50 each month, it will be worth three times more if you start investing at age 25 than if you wait until age 45. You may be able to invest more money in the future, but you can never make up for lost time.
Early Midlife (Ages 36–50)
Mortgages, student debts, insurance premiums, and credit card debt are all common financial stresses in early middle age. At this stage of retirement planning, though, it’s vital to keep saving. These are some of the finest years for aggressive saving since you can earn more money while still having time to invest and earn interest.
Later Midlife (Ages 50–65)
Your investing accounts should grow more conservative as you get older. While time is running out to save for folks who are nearing retirement, there are a few advantages. Higher salary, as well as the possibility of having some of the aforementioned expenses (mortgages, school loans, credit card debt, and so on) paid off by this time, can provide you more money to invest.
It’s also never too late to open and fund a 401(k) or an IRA. Catch-up contributions are one of the advantages of this stage of retirement preparation. In 2021 and 2022, you can contribute an additional $1,000 per year to your regular or Roth IRA and $6,500 per year to your 401(k) starting at age 50.
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