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Top Retirement Planning Tips For Canadians

What Are The Top Retirement Plans In Canada And Why?

How many of us have been planning for retirement since the first day of work? *raises hand* But have you researched the top retirement planning tips to help maximize your plans?

Top Retirement Planning Tips For Canadians

Back in our parents’ day, many companies paid into pensions so that once employees turned 65, they could walk out of the office for the last time. Those days are long gone. Today, unless you’re one of the lucky ones benefiting from the vestiges of companies offering pensions (and even if you are!), you need to set aside money for retirement.

Sadly, modern retirement saving is mostly self-driven. You get out what you put in, and not doing it correctly could mean retirement is way further off than you want — if ever!

Retirement Planning Tips: Top Savings Vehicles

There are many more ways to save for retirement than most people realize. There’s the traditional Registered Retirement Savings Plan (RRSP), and that is certainly a secure way to save for retirement. But, there are other methods for retirement savings open to you that you may not be considering, and some you probably know about but aren’t relying on. That’s why we are sharing a list of top savings vehicles to consider as part of your retirement planning.

Canadian Pension Plan (CPP) / Quebec Pension Plan (QPP)

You’ve been paying into CPP for your entire income-earning life and finally get to reap the benefits of that when you retire. Upon retirement, you start to receive monthly payments from the Canada Pension Plan Investment Board. The payments are based on how long you contribute and how much you contribute. You can cash in any time after the age of 70.

No matter how long or how much you contribute, though, these monthly payments aren’t anywhere near enough to sustain a liveable life. Some sort of supplementary retirement income is necessary. That’s why it’s important to consider this when planning for retirement, and how to fill the gap.

Old Age Security Pension (OAS)

This is a lesser-known benefit that everyone in Canada qualifies for once they hit the age of 65, whether or not they’ve ever been employed, or are currently employed. You do not pay into the plan as you do with CPP, and payments are based on how long you’ve lived in Canada. Include this in your retirement planning.

Guaranteed Income Supplement (GIS)

Unlike the previous two pension plans, GIS is specifically for lower-income people. It is a supplement to OAS for people who need it. Whether or not you qualify for GIS is based on your income tax declarations.

Employer Pension Plans Retirement Planning

A top retirement planning tip is to optimize any and all available employer pension plans. These plans come in various forms. Some are self-directed and others are employer-sponsored, and some are a mixture of both. No matter the option, it’s best to take advantage of any opportunity for your employer to help you save for retirement.

Under some plans, employers exclusively contribute to a retirement plan that is vested (you can take it when you go) after a certain number of years of service, and pays out in full, upon retirement.

Other plans allow you to set money aside each paycheque that’s put towards your retirement. And your employer may or may not contribute a percentage or dollar amount based on what you contribute. Some don’t contribute at all but still help you save by offering to direct funds into an RRSP before that money ever hits your chequing account.

RRSPs

A Registered Retirement Savings Plan (RRSP) is a savings account designed to help Canadians save money for retirement. RRSPs are central to retirement planning. Contributions are protected from income tax and come in many different types of investments. Any funds earned through these investments are also protected from tax for as long as they remain invested. This allows you to grow your portfolio in time to retire comfortably.

TFSAs

A Tax-Free Savings Account (TFSA) works like any savings account, in that you set aside whatever money you want (up to a government-set maximum). And you can remove it whenever you want, without penalty. While in the account, the money accrues interest — more interest than you would see in a traditional savings account — and that interest is tax-free (unlike in an unsheltered account, where the interest earned would be subject to taxation). And, unlike a registered savings account, funds can be withdrawn at any time, tax-free.

Real Estate in Retirement Planning

One of the major benefits of homeownership is that it’s a great vehicle for retirement savings. Many of us buy family homes that we no longer need once the kids have moved out. Why sit on a large property with empty rooms? Here’s a retirement planning tip: Downsize in retirement to free up the equity you’ve earned in that home and use it as retirement income.

Retirement Planning Key Steps:

Plan Your Future

You need to start considering what you want your retirement to look like. Do you intend to travel? Live off the grid in a forest? Visit the family regularly? In order to effectively plan for your retirement, you need to know what to plan for.

Pay Off Debts

The last thing you want is to retire with a whole pile of debt to manage. Any good retirement plan will include a plan for getting debts under control and, ideally, completely eliminated by the time you retire.

Budget

Create a budget that is realistic, both today and into the future. There is no point in living broke so that you can save for retirement. Plan a realistic budget that you can comfortably live off of until you retire, and then consider what a reasonable budget looks like once you’re no longer earning an income. And consider that with retirement, you don’t pay to commute, dress for the office, or have other fees associated with working.

Max Out Investments

There are many benefits to investing early and investing often. Investing as much as you possibly can not only ensure the best possible nest egg when you retire. It will also ensure the best possible opportunity for growth and government benefits by investing your money.

Get Professional Guidance

Don’t take our word for it, or your own. There is a LOT to consider and plan for when it comes to your retirement. This is one of those times you really should talk to a professional who will ask you questions you might not have even thought of when it comes to your retirement. Sit down with someone who knows exactly what questions to ask and offers advice on what makes the most sense for you today, and well into your future.

What is a Retirement Plan?

When you retire, you stop working, which means your income stops, too.

Lots of free time with no income could be an issue — you still need to eat and live when you’re retired. That’s where retirement planning comes in. A well-executed retirement strategy replaces that lost income upon retirement so that you can still put a roof over your head.

Retirement Planning: How Much Do I Need To Retire?

How much you need for retirement depends entirely on how you live now, how you intend to live until retirement and when and where you want to retire. Here are some important questions to ask yourself in order to determine how much money you need in retirement.

In addition, there are a number of calculators you can, and should, use to determine what you need to retire comfortably. Some of the better ones include PERC – Personal Enhanced Retirement Calculator, Retirement Cash Flow Calculator, Canadian Retirement Income Calculator and MoneyPages SmartPlanner.

What Is The Minimum Retirement Income In Canada?

As mentioned earlier, the Canadian and Quebec pension plans are not meant to be enough to live off of. In fact, they are only meant to offset your income by 25% of what it was. In 2019, the maximum monthly CPP payment is $1,154.58.

What Is The Average Canadian Retirement Income?

It is ideal to have 80 percent of your working income to live off of in retirement. Because everyone’s salaries are different, retirement income varies significantly. On average, many experts recommend setting aside at least $1 million for retirement. Here are some retirement planning tips to help you get there.

Retirement Planning Tips: Creating Your Plan

Once you consider the various savings vehicles and some of the key steps, it’s time to assess the larger pieces to start to put the plan together. Here are some retirement planning tips to help you create your plan.

1. Your Retirement Goals

Consider whether you plan to travel, or move into the cottage you’ve visited in the summer for the last 20 years. If you have grandchildren, do you plan to help them save for their education? Knowing what age you want to retire is also a really good benchmark to start to figure out how much you need to retire.

2. Your Spending Habits

If you’re the type of person who lives beyond their means, you need to be honest with yourself about how much money you can set aside now, without plunging yourself into debt to keep up with your lifestyle. However, if you live below your means, you have more money to set aside now and in the future.

There’s no point in throwing tons of money into your RRSP if you’re going to put yourself in the poor house, and need to tap into the money early to pay off debts.

Are you planning to be more frugal in retirement? Or do you plan to travel the world and live the life? Your current and future spending habits heavily influence how much you can and should invest in your retirement.

3. Unexpected Expenses

Life’s curveballs don’t stop when you retire. Make sure to protect yourself and the investments you set aside. Not only should you have an emergency fund, but your savings should also account for market changes and inflation. What will get you by in fine style today may not be enough to get you through a year of living, 30 years from now?

One of the best retirement planning tips is to consult a professional. Make sure to have someone sit down with you and go over all of these concerns, with educated projections on how to best prepare.

4. Extended Health Benefits

It is important to take into consideration your changing health needs and the extended benefits (i.e. beyond what the government will cover). You rely on those benefits more and more as you age. Make sure your retirement planning includes managing these potential costs with proper coverage and savings.

5. Boomerang Generation

For one reason or another, many adults end up living with their parents far longer than they expect to. Whether for financial or health reasons, the length of time dependants relies on your income could continue into retirement. If that is a possibility for your family, it is vital to plan for it.

Retirement Planning Tips and Resources

There are lots of tools on the market to help you along your planning process. The calculators listed above will help give you great visibility on how much to save to retire comfortably. These great tools will also help you as you plan for the time after your last day of work.

Application for a Canada Pension Plan retirement pension

Canada retirement planning spreadsheet  

Retirement planning software

Retirement Planning Tips for Canadians

You work hard throughout your life so you can enjoy a comfortable retirement. And many of you save diligently to get there. But it’s important to consider all elements of a retirement plan to optimize your resources. These retirement planning tips can help Canadians plan for a stress-free future.

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