Retirement Catch Up: Get your retirement savings back on track.
Pay yourself first. The key to building wealth is keeping a portion of what you earn. Set automatic transfer of a portion of your paycheque into a savings account, From there, you can choose to contribute a portion of your savings into a retirement account, such as a Tax-Free Savings Account (TSFA) and/or a Registered Retirement Savings Plan. (RRSP)
If you choose to contribute to a TFSA, you can contribute up to $5500 per year; keep in mind, the total contribution amount rolls over each year so you may be able to contribute more. If you're just opening the account, you can contribute up to $57000. There's a one percent per month over-contribution penalty; if you over-contributed more than $1000, the penalty is $10 per month until you remove the excess amount.
RRSP contributions are capped at 18 percent of your earned income from the previous year's tax return, up to $62,230. However, if you also contribute to a company-sponsored pension plan, the maximum amount you can contribute to into account. If this sounds confusing, don't worry; the Canada Revenue Agency (CRA) will send a Notice of Assessment with the amount of your contribution limit for the following year.
Reduce monthly expenses. If you haven't created a budget, now is a great time to start. List all of your income and expenses for the month and see where your money is going. Once you have an overview of your finances, look for ways to reduce spending, starting with non-essential spending. Then, create a budget and be sure to follow it. Track your expenses to hold yourself accountable to your budget.
Another way to reduce your overall monthly expenses before you retire is to pay off any existing debts, such as your mortgage, car loans, etc. Retiring debt-free will liberate your income for savings or living expenses.
Downsize before retiring. Many retirees choose to downsize after they've retired to reduce their living expenses. However, doing so before retirement may increase your cash flow in the short term, while allowing you to become accustomed to your new space. If moving isn't possible before retirement, look for ways to reduce your monthly housing costs instead.