As we get closer to our retirement years, we start to worry. And with good reason: for most of us, our income is not secure. It's a scary thought, and one that we don't like to think about, let alone talk about. After all, what if we can't live the life we want to? What if we can't afford to live at all!? And yet we know that, sooner or later, we need to do something. But there are so many other things that need our attention today that it's easy to put off thinking about tomorrow until... well, tomorrow. Sound familiar?

Here are two things to keep in mind:

1. Regardless of your age, it's best to start thinking about retirement right now. And,
2. Knowledge is the key to successful finances. What you don't know is your biggest danger. There are always ways to improve your financial situation through good planning and decision-making if you know where you stand.

You're not alone

According to Statistics Canada, fewer than 25 per cent of Canadians working in the private sector have an employer-sponsored pension plan, and most of these don't guarantee payouts. An additional 27 per cent have a Group RRSP. But, like defined contribution plans, Group RRSPs don't guarantee a specific income in retirement.

That leaves Canadians with the responsibility of planning for their retirement and long-term investments themselves.

Know where you stand

The first step is to get a really good picture of your current financial situation:

1. Make a list of all of your expenses. Be as detailed as you can. Start with your daily expenses, such as groceries, gasoline, pet food, and lattes. Think about your monthly expenses such as loan payments, clothing, gym memberships, insurance payments, and your children's extracurricular activities. Then add in occasional or annual expenses, such as birthday and Christmas gifts, vacations, car maintenance, and veterinary bills.
2. Have a look through your bank statements to remind yourself of your regular and occasional expenses. If you frequently pay with cash, you may need to keep track of your receipts for a month or so to help you get an accurate picture of your daily expenses. There are software programs that can help you track your expenses, some of which are free. Or you can use an excel spreadsheet, or a piece of paper and a pencil.
3. Make a list of your income sources. Again, be as detailed as you can. Include the income of all family members that contribute to household expenses. Don't forget about rental income, investment income, and business income. If your income varies, use only the income that you can typically count on.
4. Look at your current debt. Make a list of your creditors, and include their contact information, the current balance, and the interest rate. Think about mortgages, bank loans, car loans, credit cards, student loans, money you owe friends or family, and store cards. Make sure you know what your monthly obligations are.
5. Finally, list your personal finance accounts. Include things like your chequing and savings accounts, and your investments. Be sure to write down their current value or balance.

Then, congratulate yourself! You can now draw a good picture of your current financial situation.

Figure out where you want to be

What do you want your retirement to look like? Do you want to spend more time with friends and family? Travel to new places? Change careers and work just for the love of it?

Once you have an idea of the lifestyle you want to live after you retire, try to imagine what the cost of that lifestyle will be. How does it differ from you current expenses? For example:

• What will your monthly expenses be in retirement?
• Can you get away with one car instead of two?
• Will you save money on commuting costs and other work-related expenses such as business clothes?
• Will you have fewer family expenses, such as children's expenses?
• If you plan to travel, what will that cost?
• Do you plan on moving to a smaller place, buying a vacation home, or investigating senior care options? What are the financial implications of each of these?
• What sources of income will you have?

Get a ballpark idea of the cost of living in your retirement world.

Determine how much retirement income you need

Once you know what you want to do and how much it will cost, you can figure out how much income you need to make it happen. Don't forget to consider the rate of inflation on your income requirements. Assume a two or three percent inflation rate to even out your purchasing power over time. You should also plan for some unexpected expenses, and establish an emergency fund.

Then, look at all the possible income opportunities, including registered and non-registered personal savings, RRSPs, investments, company pensions, government benefits, and possible inheritances. Don't forget about the possibility of continuing to work part-time, or in a different field.

Bridging the gap

This is where you plan how to get from where you are now to where you want to be. If you find that your current financial situation and saving habits won't provide you with the exact retirement lifestyle that you want, you can either adjust your retirement lifestyle or adjust your savings and investment practices. This may mean cutting back on current expenses so you can save more, finding ways to increase or prolong your income, or determining how to get a better return on your investments.

Now, you can start to make something happen!​