Early retirement — this might seem like an impossible dream. But is it really so impossible? Not with the right approach to retirement planning.
Take a look at some top tips to making your money work for you so you can plan for early retirement in the right way.
Retire Early with RRSP Contributions
An RRSP — or a Registered Retirement Savings Plan — is something you need if you plan to retire early. This plan provides you with tax-free savings growth while you are still working, as well as a lower tax rate when you draw from it post-retirement.
Start this plan early so that you can quickly protecting your retirement savings from unnecessary tax.
Use a TFSA
You can also use a Tax-Free Savings Account — TFSA — either alongside or as an alternative to your RRSP.
This is a versatile account that can be used to build savings as well as holding mutual funds, bonds, securities, and other designated investments. Funds in this account are sheltered from tax, helping you maximize your revenue during retirement.
Depending on how much you are saving each year and your tax rate, a TFSA might be a better option than an RRSP. Your advisor can help you understand what's best for your situation.
Balance Your Savings
When planning for your retirement, a balance is required. You need to save a great deal of your income, but you also do not want to hinder your lifestyle while you're still working. Consider when you want to retire and how much income you will need each year. Remember that you're going to need 10 years of additional income if you retire at 55, for example, compared to if you retire at 65.
Careful planning is needed here. Of course, you need to be saving as much as you possibly can, but be realistic. These calculations will tell you whether or not retiring early is indeed a possibility for you. Feel free to use the retirement calculator and crunch your numbers.
Grow Income with Compounding
Compounding is a powerful thing, especially when you extrapolate this across your whole working life. Think of compounding as earning interest on your interest — so, when you earn interest on your original savings, you reinvest this interest with the bank or another savings provider, earning interest on the whole stake.
For instance, if you had $100,000 in a savings account at the beginning of year one and earned $2,000 in interest across the year, you could combine this to achieve a value of $102,000 by the end of the year. In year two, you would then earn $2,040 of interest that can be added to your stake.
In year three, the interest you receive will be $2,808, which is then added to your stake ahead of year four and so on. The interest you receive grows each year and your savings begin to expand significantly.
Build a Plan to Retire Early with Bellwether
Let's make it happen — let's get you on track to retire early. We can help you structure your savings and investments so you can truly live the dream of early retirement. Reach out today and learn more.