4 steps to retiring before you turn 60

Keep these crucial considerations in mind if you want to retire before the age of 60.

Retiring early requires knowledge of the Canadian pension system, wise investment strategies and proper preparation.

Below is the information you need to know about retiring before 60.

If you want to retire comfortably before you're 60, you'll need to make preparations years in advance.

• All Canadian citizens should make regular contributions to their Tax-Free Savings Account (TFSA), but you may want to contribute at a higher rate if you plan to retire early.

Fortunately, up to your contribution limit, you won't have to pay tax on income earned in this account.

• It's also important to make maximum contributions to your Registered Retirement Savings Plan (RRSP) long before retirement.

You only have to pay tax on this money once you withdraw it from the account.

Remember, compound interest makes saving early the smart choice, as your money has time to grow.

If you only start saving money in your 40s, it's not likely you'll be able to retire before 60, unless you strike it rich.

The amount of money you'll need for a comfortable retirement is highly variable depending on what kind of lifestyle you expect to enjoy.

• Ask yourself if you want to travel, contribute to a grandchild's education, eat out at restaurants more often or move to a new location.
• Make a detailed cost summary of your expenses that takes the future into account. If you plan to retire before 60, when you'll be more mobile, these questions become even more important.
• Consider inflationary pressures and factor in a two per cent rise in the cost of living each year.
• Assume that you'll need between 60 to 75 per cent of your current income to live comfortably during your retirement, although this amount varies from person to person.

If you retire before 65 in Canada, you'll essentially receive a reduced pension through the Canada Pension Plan (CPP), which means you'll need to ensure you are more financially secure than if you retired at 65 or later.

You also won't actually receive your CPP payments until you're 60, so if you plan to retire before then, you'll need to survive on income derived from other sources, such as stocks, bonds or savings.

Your Old Age Security (OAS) pension, which is the basic pension all Canadians who meet certain residency requirements receive, also won't be available until you're 65.

Canadians are living longer, which is a consideration you should factor into your plans. If you retire at 60, you should expect to live at least another 30 years. If you retire at 55, you should add 35 years.

A lot can happen if you retire before you're 60, so take into account emergency costs related to illness or caring for a spouse or family member, and potential costs surrounding long-term care, which can be quite expensive.

Anticipating these costs will help ensure that you have all your bases covered and are ready for all contingencies as you head into your retirement.

Although there can be some challenges to retiring before you're 60, with proper planning, consistent contributions to your retirement and an understanding of the pension system, you should be able to have the retirement you want and expect.