Retirement is a significant life transition. In the 5 years before a planned exit from the workforce, retirement planning moves into high gear. The time to continue saving is growing shorter, as the money you've saved for retirement reaches its peak.

If you're thinking about retiring in the next few years, here are 3 steps you can take to help set you up for financial success.

Step 1: Review your sources of retirement income

Spending in retirement is typically funded by a mix of guaranteed, lifetime income sources ― like the Canada Pension Plan (CPP), the Quebec Pension Plan (QPP), or a company issued defined-benefit pension plan ― and savings in your personal portfolio, such as a Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) or a defined-contribution pension plan.

CPP, QPP and defined-benefit pension plans pay out steady amounts that generally don't fluctuate from month to month.

In contrast, funds in Registered Retirement Savings Plans (RRSP), Tax-Free Savings Accounts (TFSA) and defined-contribution pension accounts are used to supplement retirement income by making withdrawals over time as needed. Funds in these accounts are invested in a mix of assets to align to your risk preferences.

Higher-risk assets like stocks may produce larger gains over the long term, boosting your eventual retirement income, but they may also be more volatile as their value may fluctuate from year to year.  Whereas, lower-risk assets like bonds and GICs are generally safer and more stable, providing lower returns from year to year.


Step 2: Assess the risk in your financial plan for retirement

Some retirement experts refer to the years just before retirement as the “retirement risk zone," when changes in your asset value could have long-term impacts. 

For example, once you’re in the zone, if your asset values drop in the years before you retire, you may not have time to wait for them to recover before you need to start taking withdrawals. Starting withdrawals when your investment values are down isn’t ideal as it could mean your funds won't last as long as planned in retirement. If this situation occurred, you might need to decrease the number of withdrawals, or the amount of the withdrawals, to extend the length of time your investments will last. 

On the other hand, if your retirement spending needs will be met from guaranteed sources that provide a steady monthly income, making adjustments in your personal portfolio to move to lower-risk assets may not be necessary. 

Step 3: Build your personalized plan

Now that you've reviewed your sources of income and the risk in your financial plans for retirement, you're ready to build a plan that's appropriate for you.

The right plan for you will depend on your individual needs and circumstances, including how your expected income in retirement is balanced between guaranteed and non-guaranteed sources. Plus, the right plan will help minimize risk in a way that fits your overall financial situation, goals, and preferences.

An advisor can work with you to help review how much investment risk you're exposed to for retirement, and how to reduce risk if necessary. 

The years before retirement can provide a key opportunity to make changes that meet your future needs, while taking action to safeguard current savings and resources. Make the most of this opportunity through a proactive financial review to help secure the retirement you’re planning on.