Is your dream of retirement warm, sunny days on a tropical paradise? Downsizing to that perfect house near the grandchildren? Whatever your vision is for the future – whether in five, ten, fifteen, or even twenty years, there are things you should know when it comes to saving for your retirement.
Depending on what you want your retirement to look like, you will need to plan your savings carefully. Someone saving to downsize to live near their grandchildren to spoil will have a different retirement savings plan compared to someone who wants to live the rest of their days travelling.
What Retirement Might Look Like for You
It’s okay if you don’t know what retirement looks like for you. There’s a lot that goes into setting up that perfect retirement, starting with when you want to retire and including where you will be living, what your day looks like, and whether or not you’ll need extra income to supplement your living expenses. When envisioning your retirement, start with research!
Research if you need supplementary income – most people can’t just “shut off” from working like a light switch. Some will need to keep working, and others will want to keep working in some capacity to keep their hands and minds busy. Whether you own a business and will take reduced hours, or you take a part-time job, you need to be aware that it can affect your overall retirement funds. Any type of paid employment during retirement can supplement your income, which means you won’t draw on any government or company-sponsored programs just yet – giving you more money later!
Where will My Retirement Money Come From?
So, you know what you want retirement to look like – great! The next step is to figure out where the money to fund your retirement will come from. There are a few income sources available for you to help make your retirement dreams a reality!
Public Government Programs
The Canadian Pension Plan (CPP) is available for all Canadians. You’ve been paying into this your entire working life, so when it comes time to retire, you’ll receive a monthly payment based on your contributions made while working (psst – paying into CPP happened automatically on each paycheck you’ve ever received!).
You can learn more about CPP details and payments from the Government of Canada website.
The federal government also provides Old Age Security (OAS) as a monthly payment that you may be eligible for, depending on your income. Unlike CPP, which you pay into, OAS is available to working AND non-working Canadians over 65. There are restrictions, so read up on OAS to get a better idea of how it works here!
Both CPP and OAS are indexed, meaning they increase each year with the Consumer Price Index (CPI). However, CPP and OAS are not designed to be the end-all of your retirement fund. Consider them a supplement to whatever other income sources you’ll draw on for your retirement.
Company-sponsored Plans
If you’ve been working, there’s a good chance that your employer also has a retirement plan of some sort available for its employees. This could be a company pension plan, Group RRSPs, Deferred Profit-Sharing Plans (DPSP) and/or Pooled Registered Pension Plans (PRPP).
How much you receive from your employer’s company-sponsored plan, however, depends on the type, structure of the plan, and your contributions into it as well as the length of employment. The amount you receive will also depend on whether or not you retire early; typically, the longer you defer payments, the larger your payment amount.
Make sure you know your company’s sponsored pension plans and what options are available for you.
Your Savings, Assets, and Investments
Of course, we can’t forget about your savings, investments, and other assets! There’s a good chance that the majority of your retirement fund will come from one, or all, of these three. Whether that is a registered retirement savings plans (RRSP), tax-free savings account (TFSA), or selling your house and using the remaining proceeds, or money you’ve kept in a high-interest savings account (HISA), there are things you need to consider.
Registered investments can have tax implications when you withdraw your funds, and all have different requirements. For example, RRSPs must be collapsed or transferred to a Registered Income Fund (RIF) by December 31 of the year you turn 71 years old! On the other hand, TFSAs have no age limit, and savings are not taxed upon withdrawal.
If you’re looking at selling assets like your primary residence, or a vacation property, to help fund your retirement, there are things you’ll want to think about too. That could be transferring ownership, or incurring capital gains tax, or even the challenges of selling in a cold market that could affect your retirement timeline.
Your retirement dreams are within reach! A bit of research and careful planning, will ensure everything is in place so that your golden years are going to be just that – golden!
It’s never too early to start building your retirement plan! Contact a member of our Wealth and Investment team to help you prepare for your future and Make Peace with Your Money. We’re here to help!