Top 10 Retirement Planning Tips For Canadians

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 these plans?

The nature of work has drastically changed in recent decades. For starters, it’s now quite normal to work at a variety of companies over the course of a career. Secondly, pension plans were a lot more common in previous years. According to Statistics Canada (as reported by the Financial Post), only 37% of Canadian workers were covered by a pension plan in 2019.

Suffice to say that the days when a worker would stay at the same job their entire career, and walk out of the building at 65 and into a comfortable retirement, are quite different now.

The fact is, the vast majority of retirement savings in this country are self-driven — illustrating the crucial need for proper retirement planning.

Top 10 Retirement Planning Tips For Canadians

How do you plan for retirement?

There are several retirement planning avenues that Canadians could take, including some that all citizens are eligible for.

Before getting into our list of retirement planning tips, let’s look at the common sources of retirement income available to Canadians.

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Most common retirement plans

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

You’ve been paying into CPP for your entire income-earning life. When you retire, you get to reap the benefits, although it’s unfortunately not enough to fully fund your post-career years. Actually, it’s designed to replace 25% of your pre-retirement income. In January 2021, the average monthly CPP benefit was $619.75 per month. If you’re a new beneficiary, the maximum amount you could receive (starting at age 65) is $1,203.75.

Monthly payments from the Canada Pension Plan Investment Board can start as early as age 60, or as late as 70. Many experts, however, recommend you start later since benefits are based on how long and how much you contributed.

FYI: CPP Application from the Government of Canada

Old Age Security Pension (OAS)

Since OAS comes out of tax revenues, everyone in Canada qualifies for this monthly public pension once they hit age 65. It’s true — whether or not you have ever been employed, or are currently employed. Depending on whether or not the government has enough information, you’ll either be automatically enrolled or need to apply.

Payments are based on how long you’ve lived in Canada, and start the month after you turn 65. The October to December 2021 maximum monthly payment is $635.26.

Note: Seniors 75+ will see an automatic 10% increase of OAS, as of July 2022.

The Government of Canada’s full overview of the OAS.

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Guaranteed Income Supplement (GIS)

Unlike the previous two pension plans, GIS is specifically for lower-income individuals. It is a non-taxable OAS supplement for people who need it. Your income tax declarations determine whether or not you qualify.

The Government of Canada’s full overview of the GIS.

2022 CPP, OAS, and GIS Payment Dates

  • January 27, 2022
  • February 24, 2022
  • March 29, 2022
  • April 27, 2022
  • May 27, 2022
  • June 28, 2022
  • July 27, 2022
  • August 29, 2022
  • September 27, 2022
  • October 27, 2022
  • November 28, 2022
  • December 21, 2022

Registered Retirement Savings Plan (RRSP)

Registered Retirement Savings Plans (RRSPs) are one of the most common ways of saving for retirement.

A registered savings account, contributions to RRSPs are protected from income tax, and they can hold a wide variety of investments like mutual funds, stocks, ETFs, GICs, bonds, etc. 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.

Recommended Reading: Our RRSP blog section

Tax-Free Savings Account (TFSA)

A bit of a misnomer (more on that below), TFSAs is a registered savings plan that lets you grow your money. It can be a great option for both short- and long-term goals.

These theoretically work like any savings account, in that you set aside any amount of money you want (up to a government-set maximum). You can withdraw these funds at any time, without a tax penalty. While in the account, your money will accrue interest. Given the account’s accessibility and flexibility, it can be a great place for your emergency fund.

The misnomer part? While it’s called a savings account, almost any investment an RRSP can hold can go into a TFSA. Ultimately, TFSAs are shelters that are similar to an RRSP without the contribution window — although with contribution limits!

Related Reading: TFSA vs RRSP: Where To Put Your Money

Employer pension plans

Employee pension plans come in a variety of forms. Some are self-directed, others are employer-sponsored, and some are a mixture of both. No matter the option, it’s best to take advantage of any opportunity where your employer helps you save for retirement.

If you leave or get laid off from your job that has an employer pension, those funds get transferred to a Locked-In Retirement Account (LIRA), a type of registered account. You might also have the option of keeping your pension at your former company, with regular monthly payments sent to you once you retire, or transferring it to a new employer pension.

In the lead up to retirement, your LIRA must be converted into a Life Income Fund (LIF), a registered account through which you’ll receive your pension funds as retirement income.

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, when you want to retire, and where you want to retire.

There are a number of retirement calculators you can and should use to determine what you need to retire comfortably. For starters, we have three great retirement-related tools that can help you figure out:

  • Determine at what age will you reach your retirement goal with the retirement age calculator.
  • The retirement savings calculator helps you figure out how much you need to save each month to reach your retirement goal.
  • Figure out the value of your future retirement nest egg (based on current and future monthly investments) with the retirement nest egg calculator.

Related Reading: The Best Financial Planning and Retirement Calculators

Top 10 retirement planning tips for Canadians

These retirement planning tips are designed to be guidelines. Getting ready for your golden years is a process that is actually many more steps, and

#1: What do your post-work years look like?

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.

Knowing what age you want to retire is also a really good benchmark to start figuring out how much you need to retire.

#2: Knock out your 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.

#3: 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. Be sure to think about how, in retirement, you don’t pay to commute, dress for the office, or have other fees associated with working. At the same time, you’re likely planning on devoting more time to hobbies, travel, and leisure — all potentially costly!

#4: Know your general time horizon, maximize your investments, and understand risks

You probably don’t need us to tell you that there are many benefits to investing early and investing often.

Starting early and regularly contributing to your investments means that your retirement savings will have time to grow. The general advice is that if you have a long horizon ahead of your post-work years, you can afford to take calculated or planned risks. If your retirement is coming up in a few years, it’s time to think more conservatively.

Basically, for a good chunk of your working years, the focus will be on building and growing your wealth. In the latter part of your career, you’ll transition to wealth preservation.

Related Reading: How To Invest Your Money

#5: Review 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 tap into the money early to pay off debts. Your current and future spending habits heavily influence how much you can and should invest in your retirement.

#6: The importance of estate planning

Because most people don’t like to contemplate their own mortality, estate planning is often a neglected aspect of financial planning and retirement planning. But as the population ages, it’s a topic that deserves more attention — especially since one in four Canadians will be a senior by 2030?

Estate planning is a road map for how your assets – both money and property – will be distributed after you die. It also defines how other important personal matters will be handled according to your instructions. This can include who will take care of any minor children or pets. The main documents are Power of Attorney (i.e. a ‘living will’) and a will.

Related Reading: How Estate and Inheritance Taxes Work in Canada

#7: Have solid health coverage

It is important to take into consideration your changing health needs and the extended benefits (i.e. beyond what the government will cover). You’ll likely rely on these more and more as you age!

Make sure your retirement planning includes managing these potential costs with proper coverage and savings.

#8: Consider your adult children

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.

When planning your retirement, think about whether you want to (or can) help out your children and/or grandchildren into your retirement years. For example, helping with a home downpayment or contributing to an RESP.

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#9: Can you retire late?

Simply put, early retirement costs more. The more time you spend working, the more you can keep setting aside for retirement.

Even more, stopping work means you’ll stop contributions to CPP/QPP. As a result, your payments will be smaller to account for a longer retirement. For a similar reason, your pension payments will also be smaller if you retire early and have such a benefit.

Another thing to think about? OAS doesn’t begin until you’re 65.

That said, if you’ve aggressively saved your money, invested wisely, accounted for potential unexpected costs, and have determined that you’ll be able to live the life you want while retiring early or on time? Go for it!

#10: Get guidance from a pro

Don’t take our word for it — 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 and retirement planning tips that make the most sense for you today, and well into your future.

You’re in the right place for financial advice.

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