Top 9 Tips to Retire Wealthy in Canada
Retirement planning doesn’t need to be stressful, these are tips to retire wealthy in Canada!
16 Minute read
Originally published: November 18, 2022
Updated: April 18, 2023
Top 9 Tips to Retire Wealthy in Canada
Retirement planning doesn’t need to be stressful, these are our tips to retire wealthy in Canada!
16 Minute read
Originally published: November 18, 2022
Updated: April 18, 2023
Planning your retirement is an important decision, that is why we made a list of the top 9 retire wealthy in Canada. Retirement planning happens at a different stage of life for everyone, some folks are lucky to have the means to start planning for their retirement as early as their teens or young adulthood, while others tend to be a bit late to figuring out their retirement plan. No matter where you are in your life, it is important to consider your retirement plan and get the professional advice and help that you need to make sure that your retirement can be an enjoyable and financially rewarding time! Lets get started on our tips to retire wealthy in Canada!
In this article:
- Tips for Retiring Wealth in Canada
- Tip #1: Start a Registered Retirement Savings Plan (RRSP) as soon as possible
- Tip #2: Maximize the use of your Tax-Free Savings Account (TFSA)
- Tip #3: Find out how much you will need yearly
- Tip #4: Pay off all your debts
- Tip #5: Know all of your savings options
- Tip #6: Make investments which will make income
- Tip #7: Invest your pension plans
- Tip #8: Maximize your Canada Pension Plan benefits and government benefits
- Tip #9: Protect your family and assets with life insurance
- How to retire wealthy in Canada
- Frequently Asked Questions (FAQs) about Retiring in Canada
Tips for Retiring Wealthy in Canada
Creating a strong retirement plan requires extensive planning and even some predicting into the future. We know how difficult it can be to figure out how to retire wealthy, and we know that it can be nerve-racking as well, but we have some excellent tips to help you realize that it isn’t as difficult as you might have imagined. Welcome to our blog about the top 9 tips for Canadians who want to retire wealthy. This blog will give you an insight into what retirement planners believe are some fool proof ways to generate savings throughout your life, how much money you will need for retirement in Canada and more! Take a look at our list here:
Tip #1: Start a Registered Retirement Savings Plan (RRSP) as soon as possible
Let’s start out tips to retire wealthy in Canada! The best tip for all Canadians who are looking to save for their retirement is to open a Registered Retirement Savings Plan (RRSP) as soon as possible. This is one of the prime savings accounts out there to help you garnish your retirement.
The ideal scenario is to make contributions to an RRSP during your life, convert it to a Registered Retirement Income Fund when you retire, and then either buy an annuity or take a lump sum withdrawal to access your assets. You can also take money out of your RRSP to pay for college or to buy your first house. The RRSP is a fantastic method to save money for your future retirement plans while simultaneously reducing your current taxes as well because your yearly contributions are tax deductible. You can make contributions to this account up until the age of 71, and you can withdraw the funds and transfer them to an RRIF as early as the age of 55.
A Registered Retirement Savings Plan (RRSP) operates in a fairly straightforward manner. You can choose to utilize your RRSP account to save money only or to combine it with an investment vehicle (GICs, ETFs, bonds, equities, or mutual funds) to generate income on your investments. Regular payments to your RRSP are preferred since they benefit your investments because they grow tax-deferred until they are withdrawn. You must stop making contributions to your RRSP the year you become 71 years old. Then, to retrieve your funds, you can either convert your RRSP into a Registered Retirement Income Fund (RRIF), buy an annuity, or take a lump-sum withdrawal. Receiving your savings will be regarded as taxable income, but since you’ll probably be earning less once you’re retired, the marginal tax impact won’t be as steep. To get started on opening a RRSP, or to find out if this is a good option for you contact our team of retirement professionals!
Tip #2: Maximize the use of your Tax-Free Savings Account (TFSA)
Like the RRSP, the Tax-free Saving Account (TFSA) is another popular savings account that is used to increase your savings as much as possible. The major benefit to the TFSA is that the earnings on any income made in the account is not taxable. Your TFSA account funds can be simply withdrawn at any moment! Any money you take out of your account can be reinvested next year to prevent having your annual contribution amount reduced. Additionally, if you never had a TFSA and were 18 or older since the program’s inception in 2009, your contribution room is currently $81,500 and will increase every year. So, with a TFSA, you have full access to saving up a significant amount of money that won’t be subject to taxes.
Tip #3: Find out how much you will need yearly
Finding out the amount that you need per year when you retire is not as tough as you think and there are many methods that can help you find out approximate amounts that you need to have for your retirement. The yearly amount that you need for your retirement really depends on how much that you’re making right now and if it is sustainable for you. There are many industry experts who have different opinions on this so we will take a look at some common methods.
The 70% rule
The 70% rule simply means that you will need 70% of your pre-retirement income per year when you retire. That means that if you are currently making $100,000 per year, then you will need $70,000 per year during retirement. This is quite a high amount and just goes to show the importance of saving up for retirement. Though there are ways to access this kind of money through the right investments and savings. To find out more about the right amount of money that you will need every year during retirement please contact our retirement experts and they will help you with finding the right retirement plan for you!
The 4% rule
Similarly to the 70% rule, there is also a 4% rule which will require you to have a healthy amount saved. The 4% rule states that if you have a large lump sum saved up, then you can use 4% from the lump sum per year to use for your living expenses. Now keep in mind that this contrasts the 70% rule quite a lot, because let’s say that you have $1,000,000 saved, now this means that you can use $40,000 per year for your retirement. This can require a lot of savings but it is definitely possible to make $1,000,000 if you have enough income or save and invest at a young age. This is something worth considering if you still have decades from retirement, contact us now to find out how to set up your financial situation to be retirement ready!
Multiplied expense rule
This is a simple way to really narrow down your basic expenses that you will have during retirement. This is a good way to find out how much you will need for your retirement, and it might be tough to make a complete calculation because it will require you to make some calculated predictions. This rule will require you to add up all your annual expenses that you think you will have during retirement, and then multiply that by the approximate years you think you will be alive, the results will be the amount of money you will need for retirement. For example, if you are 65 years old and you think you will live until 85, that is 20 years. Now if you have $30,000 in expenses annually, then simply multiply $30,000 by 20 which equals $600,000. So now that you have the approximate amount, then you need $600,000 total for your entire retirement.
Also consider reading: How much life insurance do I need in Canada?
Tip #4: Pay off all your debts
When you are about to retire, or have retired, the last thing you want to do is worry about having debts, luckily you have plenty of time prior to retirement to pay off your debts. There are small debts, medium sized debts, and larger debts out there which are all debts nonetheless and can really add up overtime if you don’t focus on tackling them. There are many people who find themselves in difficult situations due to the debts that they have but this debt shouldn’t follow them into retirement. If you have a small debt like an outstanding credit card, you should try your best to tackle this first. A medium sized debt like a car payment, student debts or line of credit, takes some time but you should also try your best to break this down into manageable payments and although it might take some time, it is worth chipping away at it. For larger debts like larger loans like mortgages, it is okay if it takes you 25+ years to pay these things off. What you have to realize is that larger debts like a mortgage should be priority as you slowly reach your senior years because you do not want to be paying an expensive mortgage when you are senior. Paying off your mortgage early on as a senior is how many seniors tend to enjoy their retirement because of the fact that their house payments are so low.
Tip #5: Know all of your savings options
Understanding finances in Canada is not an easy task and there are so many different ways to save and grow your funds. As we mentioned earlier there are amazing registered savings accounts out there such as the RRSP, TFSA, FHSA and there is the RESP which is a good way to make saving for your child’s education easier. There are also great savings tools like High Interest Savings Account (HISA) or a Guaranteed Invest Certificate (GIC) which can help build your savings without any risks, these are awesome accounts to look into and you can definitely use these to help build up your savings amounts. This is one of the most important tips for Canadians who want to retire wealthy. It is tough to find out about your savings options, but luckily our retirement experts are here to help you find out the right investment or savings plan for you, just contact us to get started.
Tip #6: Make investments which will make income
There are many investment options out there just like there are many savings options out there as well. Investing is how many seniors secure their retirement goals and it might be hard to invest if you are completely new to investing, but our retirement experts suggest that you get expert advice to figure out what is the right investment for you. As far as investments go, there are plenty of types of investment options such as, but not limited to:
- Mutual funds
These investments are great for those who are looking to slowly earn income on their retirement savings. The best part about investing is that you can have people manage your investment portfolio for you so you don’t have to worry about it. Now there are some precautions that every investor should take, find out your risk tolerance and see how comfortable you are with certain investments. There is also a time frame that you should try to have in mind with certain investments because you don’t want to prematurely withdraw from an investment which can lead to unnecessary fees or even loss of incomes sometimes. Therefore we highly recommend that Canadians who want to retire wealthy speak to a retirement planner. Our retirement planners offer FREE consultations and can help you through the process of starting to save for retirement.
Benefits of investing with whole life and universal life insurance
If you want to hit two birds with one stone, the one of the best plans to secure your assets and family while investing is to purchase a whole or universal life insurance policy. Two of the most popular types of permanent life insurance products are universal and whole life insurance. Both provide a payout to your beneficiary in the event of your death and provide you the option to invest money inside the policy that is tax-sheltered, known as the accumulation value or cash value of the policy.
The accumulation value less any surrender fees or market value changes is the cash surrender value (CSV). Both universal life and whole life policies allow the policy owner to borrow against the CSV value or withdraw from it. Whole life policies typically permit borrowing against 90% of the CSV, while universal life policies typically permit borrowing against 50% to 90% of the CSV, depending on the underlying investment within the policy’s cash value.
The two products differ the most in terms of how this cash value is accumulated and managed. To find out more contact us or read our awesome guide on the different types of permanent life insurance! Moving on to the next set of tips to retire wealthy in Canada.
Tip #7: Invest your pension plans
Continuing on with out tips to retire wealthy in Canada, many Canadians tend to have a pension plan from their current employer or from previous employers. When considering the pension plan that is provided by your previous employers, don’t let the potential of your retirement fund go to waste by letting your former employers hold on to your retirement when it can be secured by you and used for investment purposes/saving. A Locked-in Retirement Account (LIRA) is what you need to secure your hard earned retirement money, and it is a way to make it easy to use your retirement fund completely tax-deferred.
Unlike the money you contribute to your own RRSP, this money must be utilized to pay for your retirement. These accounts are designed to be a steady source of income in the long run after retirement. There are certain restrictions, though. You won’t be able to cash out your LIF or LRIF in most cases. The government also establishes a minimum and maximum amount of money you can receive from your LIF or LRIF each year. However, you have some discretion over the types of investments and payments you make within this range.
Typically, you open a Locked-in Retirement Account (LIRA) after you leave an employer with a pension plan. Alternatively, some in case you might open a LIRA if your earnings may have been divided between you and your ex-spouse, in both cases that you cannot access the funds until retirement or for financial hardships. If you like, you can open this account on your own to put the money in a secure place for when you retire. You must be retired in order to use these assets, after which you must convert them into a Life Income Fund (LIF), an annuity, or a Locked-in Retirement Income Fund (LRIF).
Tip #8: Maximize your Canada Pension Plan benefits and government benefits
There are many government benefits that are out there for Canadians to receive when they retire. The most popular government benefit for retirees is the Canada Pension Plan (CPP) which is a social insurance scheme that is funded by contributions from workers, companies, and independent contractors as well as investment gains. There are a few qualifications you must meet in order to be eligible for the Canada Pension Plan, which is a social insurance policy for the benefit of the entire community. To be eligible to apply, you must make sure that you:
- Are at least one month older than 59.
- Been employed for a while in Canada
- Made at least one legitimate CPP contribution.
- Want CPP payments to start in a year
A valid CPP contribution can come from work you did while living in Canada or from money you received from a former partner after a relationship ended.
Most people tend to retire and begin their CPP at 65 years old, but you can start it as early as 59 years old. The graphic below will show you how much CPP you will receive depending on when you decide to start receiving your CPP.
There are also two other important government benefits that all Canadians should be aware of, these benefits are called the Old Age Security (OAS) and Guaranteed Income Supplement (GIS). The Old Age Security benefit is contributed to by the government and does not require individual contributions. Anyone receiving or eligible for receiving the Old Age Security (OAS) pension and whose yearly income (or combined annual income for couples) is below the maximum annual level is eligible for the GIS, which is a monthly benefit as well.
Tip #9: Protect your family and assets with life insurance
Now the final into in our tips to retire wealthy in Canada is making sure that you have a strong life insurance plan. Life insurance is a crucial feature to protecting your assets, and protecting your family. Life insurance is a must-have if you are someone who has dependents, a business, debts, or a mortgage. Although life insurance can be pricer as you age and if you have medical conditions, practically everyone is eligible for life insurance. If you are a young adult or even in your 40s life insurance policies are out there for less than $30/month depending on your health, smoking status, and other information. There are also great life insurance plans out there that can help fit your needs. If you want to see how much you might be paying for life insurance check out our quick quote calculator!
Here is a brief description of the various different types of life insurance available in Canada:
Term life insurance
A term life insurance policy covers the insured for a predetermined amount of time, which may be 5, 10, 15, 20, 25, or 30 years. For the duration of the term, there is typically a guaranteed fixed premium that is typically less expensive than whole life insurance, and there may occasionally be options for a policy auto renewal to avoid the underwriting procedure.
Permanent life insurance
Whole life insurance, also known as permanent life insurance, is a policy that lasts your entire life. It should be noted that the majority of permanent or whole life insurance plans will have a rising cash value and occasionally be paid for a small period of time before never again.
There are more categories of life insurance available within permanent life insurance, such as participating life and universal life. Visit our blog where we compare participating life and universal life insurance to learn more about these two alternatives. Although permanent life insurance is a fantastic choice, it typically costs more than term life insurance.
Simplified life insurance
Simplified life insurance policies may ask a number of health-related questions, but no physical examination is necessary. Although it is typically more expensive than fully underwritten life insurance coverage, it can speed up the life insurance application process. Depending on the company, the maximum amount of coverage can reach $1 million. Simplified life insurance policies typically have no medical exams and are more tolerant of applicants with certain medical problems and lifestyles. It should be noted that every firm has its unique underwriting standards for qualifying applicants for life insurance. Therefore, a separate business may immediately approve you if, for instance, one insurance company denied you coverage due to a certain medical condition.
No medical life insurance/Guaranteed issue life insurance
Guaranteed Issue life insurance won’t ask any medical-related inquiries or demand a physical. Although this kind of policy is frequently the easiest to obtain, it is also the most expensive and offers the least level of coverage. The maximum coverage amount may range from $25,000 to $50,000.
Cost of Premiums
Full medical history disclosed.
Limited medical questions. May differ by insurance company.
No medical questions asked.
Visit from nurse or paramedical company
Most often yes.
Sometimes substitued with physicians report.
No vist from nurse or paramedical company.
No vist from nurse or paramedical company.
Speed of approval process
Longest process, may take few days to several weeks.
Typically within a few hours to a few days.
Typically within a couple hours to a couple of days.
Maximum amount of coverage
No specified maximum.
Depends on company, age and health history. Can be up to 1M in coverage.
Depends on company and age. Most often between 25K and 50K maximum.
How to retire wealthy in Canada
Now that you have read our list on the best tips to retire wealthy in Canada, feel free to reach out to us for a FREE consultation about your retirement plan. Planning for retirement shouldn’t be stressful, that is why our retirement experts have compiled this list of the top 9 tips to retire wealth in Canada. Our list to ensure that you retire comfortably includes:
- Starting a Registered Retirement Savings Plan (RRSP) as soon as possible
- Maximizing the use of your Tax-Free Savings Account (TFSA)
- Finding out how much you will need yearly
- Paying off all your debts
- Knowing all of your savings options
- Making investments which will make income
- Investing your pension plans
- Maximizing your Canada Pension Plan benefits and government benefits
- Protecting your family and assets with life insurance
Let us help build you a strong retirement plan!
This concludes our list of tips to retire wealthy in Canada. If you’re thinking about setting up a strong retirement plan that can help you grow your savings and set you up for a wealthy retirement, then contact us. Our retirement experts are well versed in helping people set up strong investments. When it comes to your retirement, you want to make sure that you have a comfortable retirement in Canada, but it is not that simple and can be stressful, let up help you with the stresses of retirement planning. Contact us now!
At Protect Your Wealth, we work with and compare policies and quotes from the best life insurance companies in Canada to create the best solution for you and your needs. We’ve been providing expert life insurance solutions since 2007, including no medical life insurance, term life insurance, and permanent life insurance, to build the best package to give you the protection you need.
Contact Protect Your Wealth or call us at 1-877-654-6119 to talk to an advisor today! We’re proudly based out of Hamilton, ON, and service clients anywhere in British Columbia and Ontario, including areas such as Kitchener, Toronto, Kelowna and Calgary.
Frequently Asked Questions about Retirement in Canada
A term life insurance policy is the simplest, purest form of life insurance: You pay a premium for a period of time – typically between 10 and 30 years – and if you die during that time a cash benefit is paid to your family (or anyone else you name as your beneficiary).
The right type of life insurance for you should be decided based on a number of factors. The key difference between whole life insurance and term life insurance is that term coverage only protects you for a limited number of years. Whole life insurance provides lifelong protection, but only if you can keep up with the premium payments charged by life insurance companies for this luxury. The difference in cost can range up to almost 15 times for the same amount of death benefit.
Term life is the better option if you:
- Only want life insurance to cover a short-term need
- Want the most affordable coverage
- Think you might want permanent life insurance but you can’t afford it right now
- Don’t want to use life insurance as a possible investment vehicle
Whole life is the better option if you:
- Can comfortably afford the higher premiums
- Want to leave money for your heirs
- Have a lifelong dependent life a child with disabilities
- Want life insurance that builds guaranteed cash value
First, it is important to understand why you were denied life insurance, then you are able to access your next steps, such as: do you look for a different type of insurance plan or could you need to apply to a different company?
If you are looking for a deeper understanding of reasons why you could be denied life insurance, check out our blog about 6 Reasons Why You Were Denied Life Insurance.
Yes! Absolutely you can get life insurance with any health or medical condition, there are certain types of life insurance made just for this, for example, no medical or guaranteed issue life insurance policies, are a great option for you, especially if you have been denied a life insurance policy before.
Interested in learning more? Read our blog Guide to Life Insurance with a Medical Condition.
Term life is designed to cover you for a specified period (say 10, 15 or 20 years) and then end. Because the number of years it covers is limited, it generally costs less than whole life policies. But term life policies typically don’t build cash value. So, you can’t cash out term life insurance.
Is whole life insurance taxable in Canada? Some whole life insurance policies, such as a participating whole life insurance policy, provide tax-free growth while you are alive through premium payments and investments. This cash value component is guaranteed to grow in a tax-advantaged way and it will not decline in value. So long as this money is left to gain in your policy, you will not owe taxes on it.
There are so many reasons for you to get life insurance, the main being that it will protect your loved ones from any financial burdens in the event of your death, you becoming critically ill or becoming disabled. Luckily, life insurance in Canada has great rates and unique plans that can fit your lifestyle and plans that are affordable as well. Another reason to get life insurance is the fact that it can have great riders such as critical illness riders, and disability riders. These riders are important to have because life is unexpected and it is best to be protected in any event.
Simplified issue life insurance will ask health questions and do a full underwriting outside of the traditional medical exam. This means you will need to be in good health in order to qualify for affordable rates. Guaranteed issue life insurance, on the other hand, requires no health questions, underwriting and guarantees approval. This comes at a higher cost than traditional life insurance policies.
The main reason why you should have an RRSP account is to save for your retirement, but the other great reason to have an RRSP account is to have the amount you contributed to your RRSP be deducted from your annual income for tax purposes.
Individual RRSP: The most common type of RRSP that you set up for yourself and make regular contributions to.
Self-directed RRSP: This is an RRSP where you invest the savings by yourself or with a broker. This is for people who are willing to take more risk with their retirement savings as they have more personal control over their investments.
Group RRSP: Group RRSP are created by employers, they are basically a collection of individual RRSP’s. You can choose to be enrolled in the group RRSP if your employer offers this option and you will have your contributions toward this RRSP deducted from your taxable income (your paycheque) immediately.
Spousal RRSP: If you make a spousal RRSP, by contributing to the spousal RRSP, you will get you the tax deduction but the plan is registered in your spouse’s name therefore they are entitled to the accumulated savings.
The Tax-Free Savings Account (TFSA) can hold various investment benefits, such as cash, stocks, bonds, GICs and mutual funds, the growth of which will not be tax-deductible. Any contribution or any income earned in the account is generally tax-free, even when it is withdrawn. A Locked-In Retirement Account (LIRA) is an account meant for those who have an employee pension plan and leave their job. You have the option of transferring your pension plan savings into a LIRA, but you will not have access to the funds until you retire, hence it is locked-in. A Registered Retirement Savings Plan (RRSP) is a tax-advantaged retirement savings plan. You contribute to the RRSP throughout your life and once you retire you convert it to a Registered Retirement Income Fund to withdraw your income. The RRSP has plenty of tax-deductible benefits and tax-advantages.
Most people access their RRSP when they retire or are nearing retirement with it being able to convert into a RRIF or LIF as early as 55, but truthfully you can access your RRSP whenever you want. There will be a tax penalty if a lump-sum withdrawal occurs, rather than letting the account mature when you’re 71 years old, or if you don’t convert it to an RRIF, or annuity when you retire.
Yes, your RRSP contributions are tax-deductible meaning that you can deduct your contribution amount when you file your taxes.
Yes, a Tax-Free Savings Account (TFSA) is a great account for all Canadians to have. There are no fees for most TFSAs, there aren’t mandatory monthly deposits needed. A TFSA is an excellent account for all Canadians, even if they don’t have a clear savings goal in mind yet. The contribution room in your TFSA will grow if it is unused and not maxed out, therefore it will be ready for you when you want to start saving and using your TFSA. Starting a TFSA is a smart decision and is readily available. Contact our team now to learn how a TFSA will be right for you.
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