How to Retire Rich
The average age people in Canada retire is 63. Some retire later because they can’t imagine life without work, while others continue working only because they have to. When do you want to retire? How are you going to make sure you stop working when you want to?
The Perks of Hitting 65
All 65-year old Canadians are entitled to the Canada Pension Plan (CPP). Currently, retirees are entitled to $960 per month in CPP. They are also entitled to a maximum of $526.85 in Old Age Security (OAS). But is that enough to live on? Probably not, especially when you factor in rising costs.
If you want to retire early, you need to have a focused plan and put it into action early.
A Plan to Retire Rich
If you want to start a retirement plan or revamp your current plan, here’s a few options that will help you get the best bang for your buck in the years to come.
1. Contribute to a Registered Retirement Savings Plan (RRSP).
RRSPs are probably the most common retirement plan out there. Each year, you are allowed to contribute money to your RRSPs to help reduce your taxable income for the previous year. If you make a withdrawal from your RRSPs before you retire, you risk paying heavy taxes. Through the First Time Home Buyer’s Plan, however, you can withdraw up to $25,000 from your RRSPs to go towards the purchase of a home. You have 15 years to pay yourself back and for most, this is a better option than paying the bank back for a loan!
2. Open a tax-free savings account (TFSA) and make regular deposits.
Since the government doesn’t make you pay taxes on the investment income you earn through a TFSA, they make for a great long-term savings plan. You will be penalized if you contribute to your TFSA, and it can be quite hefty too – 1% for each month you were in an over contribution position. Right now, Canadians cannot contribute more than $5,000 per calendar year, plus any additional carry forward room from previous years.
3. Invest in life insurance.
No one wants to think about life without his or her partner – especially a financially challenging life. If you or your family members would be left financially strained without the other, life insurance provides great peace of mind. And that’s really what it’s all about – not so much retiring rich, but peace of mind.
4. Invest in income property.
Investment properties are a great way to build equity over time while your tenant pays your mortgage. Being a landlord is no easy task, though, and you’re still responsible for all of the maintenance and upkeep. Considering the mortgage interest (from your annual statement), property taxes, insurance, maintenance/upgrade costs, property management, utility bills, etc are all tax-deductible expenses, this seems like a pretty great deal it you have the cash flow for a down payment!
5. Focus on paying off your mortgage sooner.
There are a few simple changes that you can make to better manage your mortgage and pay off your home loan faster. Make regular annual lump sum payments and switch your monthly payments to bi-weekly rapid payments. The thousands that you save on interest can go towards your nest egg.