Planning for retirement can be intimidating. There are so many things that may or may not work. The earlier you start planning and saving for retirement, the more flexibility in time and money you will have to take care of any events and situations that are beyond your control.
Is it fine to take a five-year break from retirement planning?
Let’s take a hypothetical situation. Say you have been saving for retirement for the last 10 years and now want to take a break to pursue an advanced course in product design. Going back to student life, living off the gigs and part-time work won’t leave you with enough cash to save up for retirement. Like this, there are many situations, some that you can plan and some that you can’t like a medical emergency putting you out of work for a few years. Life happens.
If you start saving early, you can get back to where you left off and save up for retirement again. To get more insights into retirement planning, I talked to retirement planning expert Chad Harmer from Harmer Wealth Management, which helps individuals, businesses, and families plan their retirement according to their unique situation.
We asked Harmer what happens if you take a five-year break from your retirement plan. He explained that taking a break is normal, and many households do that. When you are ready to return it is about getting back on track. He said, “We [Harmer Wealth Management] reassess where you stand, adjust for the years you couldn’t contribute, and fine-tune your strategy moving forward. It’s all about recalibrating and pushing ahead with a refreshed outlook.”
Three things to consider before saving for retirement
Whether you are starting or returning to retirement savings at any age – 30, 40, or 50 – whether retiring with or without debt, the drill is the same. Harmer pointed out three things that remain common:
- Envision your retirement lifestyle, which can be anything from high-end living to modest retirement. Once you know your destination (including debt, if any), you can plan your journey and adjust your savings strategy for detours and emergencies.
- Strategize your savings approach by choosing the savings accounts and investment instruments suitable for your situation. For instance, Registered Retirement Savings Plans (RRSP) can serve the dual purpose of tax savings and retirement planning for high-income earners. Harmer suggests, “Regular check-ins with a Financial Advisor—at least annually—can keep you on track towards a well-fortified retirement.”
- Build multiple income sources in retirement. Some might have employer-sponsored pension plans, while some may rely on government pensions like the Canadian Pension Plan and Old Age Security, or some may plan to monetize their real estate assets. With multiple options, you can build a Lifetime Income Portfolio with Harmer.
Making a comeback to retirement planning
Making a comeback to retirement planning is always tough. If you withdrew all your savings during this time and are starting fresh, you may have less time to save. In an ideal scenario, it is suggested to save 8 to 10% of your gross income for retirement. However, if you have lost five years from your original plan, you might have to allocate a heftier portion of your income towards retirement.
Taking the learnings from Harmer, a bear market is an opportune time to make a comeback. If you have lost five years from your plan, BCE (TSX:BCE) can help you start where you left off. The stock is trading at its 2014 levels as high-interest rates and regulatory concerns have made investors cautious. BCE has slipped 38% since April 2022.
A $10,000 investment in BCE now can help you buy 215 shares that will give $857.85 in annual dividend income. While it cannot replace the last five years’ consolidated dividend, it can help you reduce the gap. It could be a good investment for your RRSP as your investment can grow tax-free. You can reinvest the dividend income through BCE DRIP and compound your returns.
And if you took a break from adding more to your RRSP but kept your money invested, the BCE DRIP will keep investing the dividend income and keep your money growing.
