Define Your Retirement Goal

Setting financial goals is the first and most important step in managing your retirement portfolio. Establishing a retirement goal allows you to proactively manage your financial life instead of struggling to reach an undefined - and possibly unobtainable - mark.

Below is a guide to help you get started. It can be useful before you use the Goal Setting tool.

Your Investment Plan

  1. When Do You Plan to Retire (Time)?
  2. How Much Money Will You Need (Ending Value)?
  3. How Much Can You Afford to Invest (Assets and Contributions)?
  4. How Fast Will Your Money Grow (Growth Rate)?
  5. Bringing it All Together!

1. When Do You Plan to Retire (Time)?

Determining when you want to retire is important because the more time you have to achieve your goal, the more time you have to save and maximize compound growth. Saving early significantly improves your chances of retiring when you want.

2. How Much Money Will You Need?

When first using the Goal Setting tool, it is not vital that you know your exact "nest egg" amount. What's important is to estimate what works for you today and to then start allocating investment funds against retirement. Over time, you can refine your plan and adjust the ending value by returning to the Manage My Goals page.

The following calculators will help you determine the retirement income needed and then translate that retirement income into a target lump sum required on your retirement date:

3. How Much Can You Afford to Invest?

Your allowable RRSP contribution room and your annual RRSP contribution limit provide good starting points to determine this. RRSPs have a contribution limit determined by your previous year's income (adjusted if you have contributed to a pension) and unused portions can cumulate, expanding your contribution room – check your federal income tax information for details.

Once you know your contribution room, establish how much money you have already saved. Do you have unused funds that could be added to your current holdings? Are there balances that could be consolidated?

After you understand your annual limit, see what amount you can afford to steadily contribute. By creating a budget, you can understand how much money is available each month for this savings goal.

Begin by calculating your:

  • Monthly Income: salary + bonus + other income (interest, dividends etc.)
  • Monthly Expenses: rent/mortgage, groceries, loan/credit card payments, telephone, utilities etc.
  • Proposed Monthly Savings: it is critical that you make allowance for your goals now.

Calculate these numbers by entering them into the equation below to determine if you will have enough cash flow to meet your monthly savings goals:

 

Monthly Income – Proposed Monthly Savings – Monthly Expenses = Net Cash Flow

 

After completing this analysis, you can determine precisely how you are managing your finances. If net cash flow is negative, you will need to adjust your budget.

4. How Fast Will Your Money Grow?

Knowing your investor profile and the associated asset mix - the proportion allocated to cash, fixed income and equities - will help you to estimate the returns you can expect from your savings. The table below approximates long-term returns for the various investor profiles and their associated asset mixes.

Investor Profile Average Rate of Return Risk
Secure 4.5%
 Less

 

 

More
Income 5.5%
Conservative 6.0%
Balanced 6.5%
Growth 7.0%
Aggressive 8.0%

Note: The above return rates are approximations only. Actual long run rates of return depend on when you invest and which specific securities you hold in your portfolio.

Your personal risk tolerance should be considered when determining how aggressive you are in your investment choices. Please see the section called Determining Your Investor Profile.

5. Bringing it All Together!

Use the Goal Setting tool to see how you can improve your ability to reach your retirement goal. Experiment with different "what if" scenarios by changing your contributions, time to goal, or investor profile.


Go to Goal Setting Tool

Some other helpful tips when designing your plan:

Sometimes, your investment plan does not allow you to reach the ending value you had in mind. The following tips may help:

  • Regularly save as much as you can - If you are short on your goal amount, try to invest more on a regular basis. This may require you to re-evaluate your budget.
  • Time can be your greatest ally - If you can't reach your goal in the desired timeframe, use the slider to see the result of retiring a few years later.
  • Risk Level - Pick a risk level you are comfortable with. You can become more conservative over time as your retirement date approaches to help ensure your gains are more secure.
  • Ask yourself how much money do you really need? - Verify your estimates of income received in retirement as well as your estimates of costs. You may have overlooked other sources of income - such as pensions or inheritance - which can lower the amount you need from your RRSP.
    • If your retirement needs cannot be achieved using an RRSP alone, you may choose to save outside of your RRSP. The following calculator helps you to determine how much additional savings you will require in a taxable account: How much should I save in addition to my RRSPs?

The next step is to understand the investment choices available to you.

For answers to specific questions, visit Planning for Retirement FAQs.


 
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Fast Fact: One in five retirees works after retirement

 

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