How to plan for retirement in five or 10 years


Most of your money will be tied up in your home. Is your plan to leave that money to your children? If not, when would you want to access that money and how? When you’re engaged in the planning process, experiment with different solutions as to when and how to access the money in your home. For example, will you want to sell, rent or borrow? And, of course, when?

All of your readily available money is in your RRSP which is 100% taxable when you make withdrawals. It is understandable that you don’t have a tax-free savings account (TFSA) yet. And, if you’re going to receive an inheritance, it may be best to preserve the TFSA room to accept some of the inheritance. 

3. Look at your cash flow

Things do get more interesting when looking at your cash flow statement. You’re earning $110,000 annually. In the table below I have listed your annual outflows, including Canada Pension Plan (CPP) and Employment Insurance (EI), as well as income tax based on you living in Ontario:

Lifestyle expenses $26,399
Career (CPP and EI contributions) $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 table what do you see? 

Your lifestyle expenses, the money you’re using to run your home, put gas in the car, buy groceries, etc., and hopefully have some fun is only $26,399 a year. All the expenses listed below your lifestyle expenses in the table (CPP, EI, pension plan contributions) disappear once you retire, with the exception of taxes which will be greatly reduced. You’ve mentioned that your mortgage will be paid off.

Projecting ahead four years, when your mortgage is paid off, you’ll have an extra $48,000 a year to spend or save as you wish. You could save it, but what’s the point if you’re going to continue to live on $26,399 annually. I hope you see what is happening here. 

Exposing you to your future cash flow should cause you to pause and think about a balanced approach between living an active lifestyle today and saving for an active lifestyle in your future. 

Assuming you work to age 65, your income before RRSP withdrawals may look like the numbers presented in the table below. Here are the annual numbers are in today’s values:

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