The average age for retirement globally ranges between 60 and 67. Here at home, it’s 65. But what if you don’t want to wait? Can you fund an early retirement? These questions require some heavy lifting to answer but let’s dive in and at least start considering the possibility.
Why is 65 the ‘Normal’ Retirement Age for Canadians?
Although there has been some talk of increasing it, the standard retirement age in Canada remains 65. It’s when people qualify for their full CPP benefit and Old Age Security – resulting in pension plans and wealth advisors using 65 when building retirement plans. Anything before this is considered early retirement.
So, is it feasible to retire before qualifying for full CPP benefits and OAS? There are three steps needed to discover the answer.
Step 1: Define Your Retirement
Long gone are the days when retirement was a handful of years. Now, retirement can be decades long. With that in mind, sit down and create a clear picture of your retirement.
• How will your daily expenses change?
• Will you travel? How often? How Far?
• Will you want to start a hobby?
• Will you work part-time into retirement?
• Will you and your spouse retire together, or do pension benefits, health issues, or an age gap hinder this?
• Will you downsize your home?
Once retired, you are, in a sense, self-employed. So, once you’ve mapped your retirement, start adding up the costs to determine how much you need at 65 to fund your dream? To be cautious, assume you are paying yourself at least into your 90s and include a buffer for unforeseen events , health issues, poor returns, etc.
Step 2: Know What You’ll Have
Once you know how much money you need, calculate how much you’ll have at 65 based on your current savings. Add up your retirement accounts and how much you’re putting away. Also, factor in your accounts' average rates of return to approximate what you’ll have at retirement.
Some group RRSPs and pensions provide projections which will help with your calculations. There are two ways I’ve seen this done. One, a projection on your yearend statement stating the estimated annual paycheque your account will provide in retirement. Or two, your online portal has a questionnaire that will provide a projection once completed.
Step 3: Run the Numbers
Now it’s time to compare what you’ll need to what you’ll have. If you are set to have excess funds – you can likely retire early. If it’s tight – you need to recalibrate; either change your retirement picture or save more.
Ultimately, I recommend completing this exercise with a wealth advisor – like KLT Wealth Management. Tap into their expertise. They can to give you a comprehensive, tailored plan which include inflation and other factors you may not have considered. It’s your dream – that doesn’t mean you have to plan it alone.
To start your in-depth planning with KLT Wealth Management, contact us.
- Courtney Beach, QAFP
