Without a well-defined plan for spending in retirement, Canadians could be facing unexpected and unnecessary stress.
The National Institute on Ageing’s 2024 Ageing in Canada Survey reveals that only 34 % of Canadians aged 50 and over feel financially prepared to retire when they want to, with one in four of people in this age group having only $5,000 or less saved for their golden years.
Having the right retirement strategy for how and when you’ll spend your income is key to reducing the decisions you’ll need to make once you reach retirement age.
Unfortunately, without a plan, you risk joining the 53% of Canadians who are worried about making the wrong financial decisions, with another 45% admitting that they currently do not have a financial plan in place, according to a poll from CPP Investments.
Thankfully, there are steps you can take to give yourself and your family peace of mind.
Why it’s so important to have a plan
Having a plan really does pay off.
Research from T. Rowe Price found that individuals with a formal financial plan had two to four times more wealth when entering retirement compared to those without one. A financial advisor can be the key to setting up a foolproof plan for withdrawal and spending in retirement, whether that’s based off fixed retirement savings accounts like a TFSA or RRSP, or more fluid investment portfolios.
Even if you’re confident in the amount you’ve saved for your retirement, it is still critical to understand how those assets, investments and other streams of income will be able to fund your life after you retire. That’s why individuals with higher net worths should also consider consulting a professional to make the most of their nest egg and the rest of their assets and portfolio.
You can think of them as an accessible family office which will enable you to make the appropriate financial plan for your best retirement.
How to plan your retirement income
Another big concern among the Canadians is having enough money to make it through retirement, with 61% admitting they fear running out of money during their golden years due to longer life expectancy, rising cost of living and the increasing struggle to make ends meet. This question is best answered with the help of a financial advisor, and it will largely depend on the type of accounts that you have.
When you withdraw funds from a Registered Retirement Savings Plan (RRSP) your financial institution will withhold the tax, with being made with pre-tax income. The rates depend on your residency and the amount you choose to withdraw: 10% (5% in Quebec) on withdrawal amounts up to $5,000, 20% (10% in Quebec) on amounts of $5,000 and over, up to and including $15,000 and 30% (15% in Quebec) on amounts over $15,000.
Meanwhile, if you have money stowed away in a Tax-Free Savings Account (TFSA), where contributions are made with after-tax income, and withdrawals are entirely tax-free.
As a result, many financial experts recommend using an RRSP if you are in a higher tax bracket now and expect to be in a lower one during retirement while a TFSA may be more suitable for flexible savings.
Make sure your family is secure
Finally, a plan is important because it provides your loved ones with security, too.
For workers, an emergency fund doesn’t just safeguard against a job loss. It can also be the ticket to covering surprise expenses without going into debt. And being retired doesn’t make you immune from surprises.
Without proper planning, paying for long-term care could deplete your retirement fund. In many cases, the burden of paying for care often falls on family members – potentially straining their finances.
Current research projects that by 2031, long-term care patients are expected to almost double from 380,000 to 606,000, while those requiring at-home care will spike from 1.2 million to 1.8 million, per findings from Good Comfort.
Another option that can help your family in the event of your death is term life insurance. This is a type of life insurance that offers coverage for a predetermined period, known as the "term," that typically ranges from 10 to 30 years.
Term insurance is usually a less expensive and more flexible option. If the insured individual dies during this term, the policy pays a death benefit to the designated beneficiaries.
Sources
1. National Institue on Ageing: Perspectives on Growing Older in Canada: The 2024 NIA Ageing in Canada Survey (Jan 2025)
2. CPP Investments: Retirement matters to most Canadians, but the path is unclear, survey finds (Nov 6, 2023)
3. CPP Investments: Nearly 2 in 3 Canadians worry about retirement savings: survey (Oct 30, 2024)
4. Good Comfort: The Crisis of Elderly Care in Canada (Feb 26, 2025)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
