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Your Best Retirement Starts with a Plan

Retirement means very different things to different people. Depending on where you are in your career, it may be a far-off goal or just around the corner. Some of us see retirement as a time to kick back and relax with friends and spend time with children and grandchildren, while some choose to continue working part time or embark on a new career. Others look forward to travelling the world, perhaps taking on volunteer assignments in other countries. Still others dream of turning a lifelong passion into a small business opportunity.

BMO's Retirement Savings Calculator is an easy way to see how much money you will need for your retirement.

Whatever your vision for this new stage of life, keep these two points in mind:

Create your retirement picture

As you get closer to retirement, you need to spend time developing and refining your vision of what you want your life to look like. And, if you have a spouse or partner, you will want to share your dreams to make sure you're on the same page. You will also need to consider how you will approach retiring. Some reach a certain age and exit the work force full stop, while others continue to work part time as they slowly transition into retirement. The Take Charge of Your Retirement tool walks you through some of the key questions you need to consider as you create the picture of your future lifestyle.

Funding the vision

Once you've determined what your retirement looks like, you can consider the financial elements or the frame that will support your retirement picture:

  • Cash Flow
    There is no "one size fits all" answer when it comes to how much money you need to retire. The cash flow you require will depend on the lifestyle you see yourself living in retirement. While many people find that their expenses reduce in retirement, this isn't always the case. It's important to put a number to what you will need and estimate what you will have based on government benefits, employer pensions and your retirement savings to date. If there is a gap, you need to develop strategies to close that gap.


  • Investments
    You know where you want to end up. The next step is making a smart plan to get there. You need to make sure that your savings are invested in a way that maximizes your return without taking on more risk than you're comfortable with. If your time horizon for retirement is a long one, you can afford to accept a higher risk level than someone who will be retiring in a few short years. In either case, you will need to keep some liquid funds on hand in the event of an emergency.


  • Taxes
    You need a plan that makes the most of every dollar—one that helps you to save in the most tax-effective manner, so that your money works harder for you. Minimize the amount of tax you pay on your investments by using RRSPs and TFSAs. If you have a non-registered account, make sure you understand that different types of investment income are taxed differently. To the extent possible, keep investments that produce capital gains and Canadian dividends in the non-registered account and interest-bearing investments in your tax-sheltered accounts. Consider using income splitting techniques such as a spousal RRSP with a spouse or partner.


  • Contingencies
    No matter how thoroughly you plan for the future, life takes its own twists and turns. You can't prevent this, but you can build some protection into your plan to reduce the impact of possible future medical or long-term care expenses.

Your Retirement Years
When saving for retirement, a "set-it-and-forget-it" approach can seem easy. But to be successful, you'll need to work with where you are in life. Different stages provide different challenges and opportunities when it comes to putting money aside. Understanding how you can make the best of both can help you come out ahead in your retirement years

The Working Years: Retirement Planning in Your 20s and 30s

At this point, most of us are busy working towards more immediate goals. When you're saving for a home, trying to pay the mortgage, starting a family or having a little fun, retirement feels a long way off. Still, it's important to start saving and investing for whatever retirement might bring, because the earlier you start, the more you benefit from compounding returns over time. The challenge when you are starting out is that you have many competing goals and only so much money to go around. How do you decide if you should pay down the mortgage or other debt, save for your children's education, or set aside money for retirement with the money you have left after everyday expenses?

Here are three strategies to consider:

  • High Interest Debt? High priority
    If you have high interest debt such as a credit card or personal loan, you may want to target this first. Getting rid of an interest payment at 19.9% is equivalent to making an 19.9% return on investment after tax.


  • Make Your Money Work Twice as Hard
    You can tackle mortgage debt and retirement savings at the same time. Your RRSP contribution will produce a tax refund that you can apply against the mortgage each year.


  • Take Advantage if You're in a Lower Tax Bracket
    The value of the tax deduction you get from an RRSP contribution is greater for those in a higher tax bracket. If you're just starting out and you're in a lower bracket, you may want to consider putting money into a TFSA instead of an RRSP. You can always transfer these funds into an RRSP when you're earning more to take advantage of the deduction at that time.
Approaching Retirement: Planning in your 40s and 50s

For most, the mid-life years are your peak earning years. Though you likely have more disposable income available, there are still other challenges to contend with: paying off the mortgage, helping children through the university years and caring for elderly parents. At this stage, you're likely better able to picture retiring, but you need to take a closer look at your retirement resources to make sure that your plans are still on track. Here are three things to think about:

  • Make Use of Unused Room
    You're probably in a higher tax bracket now than you were when you started out or than you will be once you retire. This is the time to take advantage of RRSP deductions—you may have unused room carried forward from previous years when you didn't make the maximum contribution. Now is the time to use it up.


  • Equality Is Key
    As a couple, you will pay less tax in retirement if your incomes are relatively equal. If one spouse's retirement income is projected to be much higher than the other's, consider using a spousal RRSP to even out the balance.

    A spousal RRSP is a tool that allows one spouse to make RRSP contributions into a plan that the other spouse will draw from in retirement. For example, Steve has $15,000 of RRSP room available. He can contribute this amount into his own RRSP or into a spousal RRSP for his wife Mary. Steve gets the benefit of the RRSP deduction either way, but if the funds go into a spousal plan, Mary will be the one to pay the tax when she withdraws the money in retirement.

  • Dial Back Risk
    Now is the time to fine-tune your investment strategy to make sure you're getting the returns you need without taking on undue risk. As you get closer to retirement, you may want to dial down your risk level to protect the value of the savings you've built up.
Living in Retirement

Now, you're finally ready to take the plunge! The transition to retirement can be a very exciting time, but it's also a time when many decisions have to be made. It's important to put thought into each and every one, as these decisions will impact your financial well-being for the rest of your life.

Here are a few areas you will need to consider:

  • CPP/QPP retirement benefits can be started any time between age 60 and 70. Of course, there are tradeoffs—the earlier your benefit begins, the smaller the monthly payment you will receive.
  • If you will be receiving a monthly pension from your employer, you may have decisions to make about when you want the payments to start and what proportion of the benefit you want your spouse to receive after you pass away. The trade-off is a lower pension up front for you. Most death benefit pensions are set up to give 60% to the surviving spouse. If you want to give more than that, your initial payment will be reduced to pay for it.
  • You will be starting to draw down on the assets you've built up over the years in your investment portfolio. What should you draw on first–your RRSP, TFSA, or non-registered accounts? Should you or your spouse be the one to draw out assets? These decisions have important tax consequences that can save you hundreds of dollars throughout retirement.
  • By the end of the year in which you reach age 71, you have to convert your RRSP into a RRIF or Annuity. While an annuity provides you with a guaranteed income for life, a RRIF gives you a more flexible income stream. You can choose one or the other, or use both, to get some of the advantages of each. See our chart on Why Choose a RRIF Versus an Annuity?

Regardless of what stage you are at in planning for retirement, a realistic financial plan and action steps can help you achieve the lifestyle you want once you leave the workforce. You will need to ensure your retirement plan evolves to reflect any changes in your life, expectations, financial situation and goals. Use BMO's Retirement Savings Calculator to see how much money you will need for your retirement and assess whether your current savings plan will get you there. A BMO financial planner* can help you with every step from identifying your goals and building your retirement savings to maximizing every dollar you've put away.

Let's talk. Call a BMO Financial Planner today at

1-888-389-8030




* BMO financial planner refers to Financial Planners, Investment and Retirement Planning that are representatives of BMO Investments Inc., a financial services firm and separate entity from Bank of Montreal.
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