Whether you’re a late starter or seasoned saver, the five years or so leading up to retirement just might be the most crucial time to get your finances in order.

Most retirement-ready checklists suggest your final working years is a time to double-down on retirement savings. The idea being that major financial burdens, such as paying down the mortgage and raising children, should be behind you and those savings can be parlayed into big contributions to your retirement nest egg.

High-income earners should look to their unused RRSP contribution room and contribute as much as possible in their final working years. This has the added benefit of generating big tax returns, which can be reinvested into your RRSP or used to pay down any outstanding debts.

Procrastinators have a final chance to break any bad spending habits and set their finances straight. The first step is to draw up a financial plan. Make it a top priority to pay down any remaining debt and get spending under control. You should then have a rough idea when debt-freedom is in sight and from there decide how long to continue working to meet your retirement savings goals.

Boosting retirement savings during your final working years

Retirement income target

The often-used retirement income target is 70 percent of your final pay, meaning if you earned a $100,000 salary in your final working years then you should aim for a retirement income goal of $70,000 per year. But new research suggests a more realistic retirement income target may be closer to 50 percent.

Regardless, you’ll need to find YOUR retirement number and determine whether you can reach your income goals through some combination of workplace pension, personal savings (RRSP, TFSA, non-registered investments), CPP, OAS, and/or GIS.

Piecing that puzzle together takes a lot of planning (and still plenty of guess work). No wonder choosing a retirement date can seem like such a daunting challenge!

Taking advantage of your final working years

According to a Tangerine survey, one-quarter of Canadians nearing retirement age don’t understand how their personal finances will work in retirement.

With that worrying statistic in mind, here’s a retirement planning checklist for your final working years:

1. Determine where you stand – Take stock of your current financial situation by listing your assets and liabilities and analyzing your current income and expenses. Identify any opportunities to save more.

2. Define future needs – How will your expenses vary in retirement? Remember, you’ll no longer be paying into programs like CPP and EI, but your retirement bucket list might need to include money for travel and new hobbies. Add up your expected CPP and OAS benefits, plus any workplace pension plans, and determine the gap between your income and expenses. That gap will need to be filled from your personal savings.

3. Ramp up savings – Take advantage of unused RRSP or TFSA contribution room and boost your retirement savings into overdrive. Your final working years are a chance to make up for lost time; make sure to maximize your full employment income to have the most impact on your retirement savings.

4. Adjust course as necessary – Your final working years will give you a good idea whether or not you’re financial prepared for retirement. But even if you find your savings lacking, or you’re worried that you’ll outlive your savings, you still have options:

  • Reduce your lifestyle – Maybe you were planning on a luxury retirement, but reality sets-in and you have to settle for something less. Decreasing your annual retirement income goal is one way to preserve your nest egg.
  • Retire later – Many people dream of leaving the rat race early but the fact is that working longer not only gives you more time to save, but also fewer years of drawing down your portfolio. Those with pension plans, in particular, would benefit greatly from additional years of service in the plan.
  • Take more risk – Financial planners use assumptions on your investment rate of return to project the value of your portfolio. As employees get closer to retirement, conventional wisdom has their portfolios shifting to less risky assets. But retirees are becoming more comfortable holding a higher percentage of equities in their portfolio. Given that retirement can often be 30+ years long, it can make sense to maintain a decent allocation of stocks well into retirement. Even a 1 percent increase in your annual investment returns can have a big impact on the life of your portfolio.

Final thoughts

Despite years of planning and saving, the transition to retirement can be financially challenging for many of us. Our final working years can give a major boost in preparing for retirement, whether through increased savings, aggressive debt pay down, or simply a conscientious effort to get our finances in order before reaching this milestone.

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  1. Owen @ PlanEasy.ca on July 9, 2018 at 8:18 am

    The last few years before retirement are also a great time to optimize your financial structure to maximize government benefits like CPP, OAS and GIS. Even moderately wealthy households who don’t have a pension can get a few years of GIS if they structure their RRSP, TFSA and non-registered investments properly before retirement.

    Optimizing for GIS could add an extra $30,000 to $100,000. This can make a big difference in retirement for moderately wealthy families.

  2. Keith C. Cowan on July 9, 2018 at 3:10 pm

    After a late divorce, I worked for 5 additional years to recover from the loss of half my equity. Those were high earning years with little added expenses. Than we reduced all unnecessary expenses. I focused on maximizing portfolio returns and now, 17 years later, we are in fat city and working at giving away our wealth.

  3. Cheryl on July 9, 2018 at 10:47 pm

    Same thing as Keith above. Late divorce. House sold. Likely never be able to get back into home ownership. Assets diminished. Cost of living expenses for a single on a low income have doubled – rent and car maintenance take almost 75% of my income. Fortunately no debt so I’m saving as hard as I can for retirement and expect I’ll have to keep working longer than expected just to pay bills.

    I think the Tangerine survey is lowballing and it’s much higher than 25% of Canadians who won’t know how their finances will work in retirement.

    Definitely the last 5 to 10 years should be a big push for retirement savings. I wonder how many people do take that advice at the end of their working lives.

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