Retirement Readiness - Do I Have Enough to Retire?

October 11, 2023

Financial security throughout retirement is an important goal many Canadians work their entire careers to achieve. Considering factors such as the impact of inflation, longer life expectancy and the related costs of maintaining good health and long-term care needs, many worry they will not be able to save enough and may run out of money. Each person’s vision of their retirement is unique and will require a customized plan. Attention needs to be given to individual wants and needs. Early planning is the key to ensuring you have the finances in place for your dream retirement.

Important steps in retirement planning include self-reflection and discussions with family to determine what this next chapter of your life will look like. The outcome will be different for everyone. Your vision for retirement will dictate how much income will be required to fund your plans. When first retiring, many are in an active stage, engaging in a number of activities such as travel, social engagements, looking after their grandchildren or learning a new skill. Some become snow birds and live in warmer climates during the cold Canadian winters. Slowly, over time retirees enter a less active stage. Later in life it may be difficult to remain in their current home and consideration is given to downsizing their existing residence, moving into a retirement community or long term care home. Older Canadians can face medical concerns leading to an increase in medical care.

Once the vision for retirement is set and goals are made, it is then time to calculate how much it will take to fund these plans, along with paying for fixed and discretionary day-to-day expenses.

Income Sources During Retirement

Government Programs

Canada Pension Plan (CPP)

• taxable benefit received based on your average earnings throughout your working career

• standard age to receive the monthly pension is 65, but can receive this as early as age 60 with a reduction of 0.60% every month it is taken early, or delay taking the monthly pension up until age 70 with an increase of 0.70% every month delayed

• reasons to take CPP early include requiring the income stream to cover expenses, shortened life expectancy or tax advantages

• reasons to delay CPP is to increase the benefit which can be beneficial if there is an increased life expectancy and the additional income is not required to cover expenses

Old Age Security (OAS)

• taxable benefit received at age 65 with the payment based on how long you have lived in Canada or specific countries after the age of 18

• OAS clawback for 2023 occurs if net income before adjustments is greater than $86,912, 15% is repaid on every dollar over the excess amount to a maximum of the total amount of the OAS received

• the Guaranteed Income Supplement (GIS) is a non-taxable benefit available to low-income Old Age Security pensioners with the supplement based on income and marital status

Registered Pension Plan Benefits from Employers

Defined Benefit Pension Plan

• provides a pension benefit that is calculated according to a set formula. The calculation is normally based on a number of factors including years of service and salary history. The defined benefit plan promises to pay you a certain amount of monthly retirement income for life.

Defined Contribution Pension Plan

• a contractual pension in which the employee makes a contribution into the Registered Pension Plan (RPP) with the employer matching a percentage of these contributions. The monies are then invested on your behalf into various investment options. The total amount in the plan is based on the total contributions plus the investment income accumulated. Upon retirement this is turned into an income stream.

• The remainder of an individual’s retirement income will come from their personal savings which can be achieved through a variety of options including: TFSAs, non-registered accounts and real estate property income, to name a few. All have their specific features and benefits and differing taxation implications, so speak with an advisor to understand the options.

Registered Retirement Savings Plan (RRSP)

The Registered Retirement Savings Plan is a plan specifically designed to assist Canadians in saving for retirement.

• contributions are deducted from taxable income therefore lessening the income tax burden

• monies contributed are invested into various investment options with the growth not being taxable

• upon retirement the RRSP account is turned into an income stream with the withdrawals being taxable income

• contribution limit is 18% of the previous year’s income up to the annual maximum (for 2023 $30,780) minus any pension adjustments

• unused contribution room can be carried forward

Once your retirement budget has been calculated - expenses vs income - work with your advisor to create the retirement plan to ensure your goals can be achieved. The aim is to have resources to meet 100% of your retirement plans. If there is a deficit, then adjustments can be made. These can include decreasing your retirement goals and spending, and/or increasing your years of employment while increasing retirement savings and net worth, which also lessens the years that require retirement funding.

FirstOntario Credit Union in partnership with Credential Securities and Credential Asset Management Inc. has an experienced team of advisors specializing in various areas of wealth management including retirement planning, investment management, estate and succession planning, individual financial risk management and more. These professionals are here to help you plan for the future and reach your financial goals. Visit FirstOntario.com/Investments or call 1-800-616-8878 ext. 1700 to connect with a FirstOntario advisor and start growing your wealth today – your way.

Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Mutual funds and related financial planning services are offered through Credential Asset Management Inc. Unless otherwise stated, mutual fund securities and cash balances are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer that insures deposits in credit unions.