What to do 3, 5, or 10 years before retirement

Key takeaways

Accurately estimating your retirement spending is an important part of retirement planning.
Aim to be debt free in retirement.
As you get closer to retirement, you should gradually adjust your investment portfolio to take on less risk and protect what you have.
There are non-financial keys to being happy in retirement such as keeping busy and staying healthy.

Looking forward to retirement

At some point, you’ll likely stop working full time and enjoy the fruits of working and saving for decades. As you get closer to retiring, there are important milestones and steps you can take to prepare for a comfortable retirement.

What does your retirement look like?

This is first question you need to answer. What will your life be like in retirement? Will you travel a lot? Spend more time in your garden? Take up new sports or hobbies? Do more volunteering?

The clearer the picture you have, the better prepared you’ll be for the next step.

Create a retirement spending plan

No one likes to budget, but it’s important to estimate what your expenses will be once you retire. Some expenses will shrink with no kids at home, others (such as travel) might increase. The closer you get to retirement, hopefully the more precise your spending plan will become.

Pay down debt

Part of your planning should be to retire with as little debt as possible. That includes high-interest credit cards, a mortgage, lines of credit and even auto loans. If debt is a worry for you now, an advisor can show you how to manage that before you reach retirement.

Adjust your investment portfolio

When you were 30 or 40, it was okay to take on more investment risk, because your horizon for using that money was many years away.

But once you get closer to retirement age, your investment risk tolerance should change to focus less on growth (equities), and more on protection (balanced and fixed income assets, bonds) so you can use your investments for income soon.

That said, you still need to have some growth in your portfolio to keep up with inflation, especially if you intend to live to a ripe old age.

One rule of thumb says you should subtract your age from 100 and invest that amount in equities.

However, with Canadians living longer and needing to make their money last longer, the rule now says to subtract your age from 110 or even 120 and invest that amount in equities.

The good news is that many investment companies offer mutual funds that adjust your investments for you as you get older, based upon your risk tolerance.

Maximize your registered savings plans

If you have unused contribution room in your registered plans, tax free saving account (TFSA) investment growth is non-taxable, so maximize your investment there first.

Once you’ve done that, consider using all your registered retirement savings plan (RRSP) contribution room to get a larger deduction and the most tax refund you can. Then invest the tax refund also.

10 years before retirement

Estimate living expenses — Track your current spending. Use this information to estimate retirement income needs and develop a realistic budget – don’t forget about inflation.
Estimate retirement income — Write down all your potential income sources. Remember that personal savings, company retirement plans and government benefits will determine retirement income.
Max out matching — If your employer offers a group RRSP or retirement plan, make sure you maximize any employer fund-matching opportunities that might be available to you.

3 to 5 years before retirement

Review investment portfolio — Revisit your investment strategy and consider shifting to more conservative or lower-risk investments.
Understand your plan — Learn how plan rules and government legislation affect withdrawals of your retirement savings. For instance, it may make sense to begin withdrawing money from your RRSP before you’re required to at age 71 to limit the amount of income tax you pay.
Re-evaluate lifestyle needs — List possible lifestyle changes you’ll encounter at retirement. Consider things like travel, part-time work, health expenses or downsizing to a new home.
Update your living expenses estimate  — Has anything changed?
Update your retirement income estimate — Have your investments continued to perform as expected? Sign in to My Canada Life at Work if you’re a member of a Canada Life employer-sponsored savings plan and update your retirement goal on the home page to see if you’re on track.

1 year from retirement

Verify pension eligibility — Contact your employer retirement savings plan provider or your HR department to ensure you fulfill age requirements for receiving a company pension and the proposed annual income.
Think about estate planning — Review your will and powers of attorney along with any succession and investment plans.
Find out what your retirement income could be — If you’re a member of a Canada Life employer-sponsored savings plan by using our income wizard.
Review your budget — To ensure it will meet your needs.
Combine your retirement savings — For generally higher interest rates and lower investment fees.

6 months from retirement

Update beneficiary information — Contact your benefits administrator to confirm your company pension plan and personal savings plans have updated beneficiaries.
Apply for government benefits — To verify your eligibility for Canada Pension Plan (CPP) and Old Age Security (OAS) benefits, visit Service Canada. For Quebec Pension Plan (QPP), visit Retaite Quebec.
Apply for company pensions  — Let your benefits administrator know when you’d like to start receiving pension payments and verify the annual income amount.
Review your insurance needs — Although Canada has great health insurance, it may not cover all your needs. Determine whether you require additional health and dental insurance, long-term care insurance, or if you’re traveling outside Canada, private travel medical insurance.
Care for your mental health — During this life change, Workplace Strategies for Mental Health has retirement related resources.

Non-financial keys to a great retirement

Something that replaces time you spent at work — It could be volunteering, mentoring or even part-time work that gives you a reason to get up in the morning, social interaction and boosts your self-esteem.
Foster relationships — You may lose some of your social network once you retire, so it’s important to replace them with family, neighbours, a social or service club, or church.
Care for your health — This may be the most important key to a healthy retirement. It can save you from healthcare costs and will improve your quality of life in retirement. Plan ways to stay healthy and get exercise once you retire.

What's next?

With all the planning out of the way, you can look forward to living the kind of retirement you always imagined. After all, you’ve earned it.

If you’re a member of a Canada Life employer-sponsored savings plan, we have licensed professionals who can assist you. Contact Canada Life to learn more.

You may also want to contact your financial advisor to:

Confirm how much retirement income you can expect to receive from government plans.
Confirm your investments are on track to achieving your retirement savings goals.
Get an estimate of the annual income your company pension may provide if you’re in a registered pension plan you can transfer to a personally-owned retirement product.
Look at ways to eliminate debt.
Discuss estate planning goals.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.