How to plan your retirement in 5 or 10 years
Most of your money will be tied up in your home. Do you plan to leave this money to your children? If not, when would you like to access this money and how? When you’re engaged in the planning process, experiment with different options for when and how to access money from your home. For example, will you want to sell, rent or borrow? And, of course, when?
All your readily available money is in your RRSP which is 100% taxable when you make withdrawals. It’s understandable that you don’t have tax-free savings account (TFSA) Again. And, if you are going to receive an inheritance, it may be best to preserve the TFSA margin to accept part of the inheritance.
3. Examine your cash flow
Things get more interesting when you look at your cash flow statement. You earn $110,000 per year. In the table below I have listed your annual releases including Canada Pension Plan (PRC) and employment insurance (EI), as well as income tax depending on whether you live in Ontario:
| Lifestyle expenses | $26,399 |
| Career (CPP and EI premiums) | $4,664 |
| Contributions to your pension plan | $8,731 |
| Mortgage payments | $48,000 |
| Income taxes | $22,567 |
| Total | $110,000 |
Joan, when you look at the painting, what do you see?
Your lifestyle expenses, the money you use to run your home, put gas in the car, buy groceries, etc., and hopefully have fun, is only 26,399 $ per year. All of the expenses listed under your lifestyle expenses in the chart (CPP, EI, pension plan contributions) disappear once you retire, except for taxes which will be greatly reduced. You mentioned that your mortgage Will be paid.
Looking ahead four years, when your mortgage is paid off, you’ll have an extra $48,000 per year to spend or save as you see fit. You could save it, but what good is it if you continue to live on $26,399 a year. I hope you see what is going on here.
Exposing yourself to your future cash flow should cause you to pause and think about a balanced approach between living an active life today and saving for an active life in the future.
Assuming you work until age 65, your income before RRSP withdrawals might look like the numbers shown in the table below. Here are the annual figures in today’s values:
