Retirement

Planning

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Why Retirement Planning?
 Successful, happy retirement takes planning and
continual evaluation
 Planning helps you anticipate future changes and gain
control over your future
 Rules for retirement planning are constantly changing
 Some common misconceptions about retirement
planning are:
 My expenses will drop when I retire
 I can depend on the government and my company pension to
pay for my basic living expenses
 My pension benefits will keep pace with inflation
 There’s plenty of time to start saving for retirement
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Why Retirement Planning?
The Importance of Starting Early
To take advantage of the time value of money
 If from age 25 to 65 you invest $300 a month (9%) at age
65 you’ll have $1.4 million in your retirement fund
 Wait ten years until age 35 to start and you’ll have about
$550,000
 Wait twenty years until age 45 and you’ll have only
$201,000 at age 65

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Why Retirement Planning?

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Why Retirement Planning?
The Basics of Retirement Planning
People are spending more years (16-20) in retirement
A private pension (if you have one) and government
benefits are most often insufficient to cover the cost of
living
Inflation may diminish the purchasing power of your
retirement savings

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Conducting a Financial Analysis
Review Your Assets
 Housing
 If owned, probably your biggest single asset.
 If you have a large equity, consider a reverse annuity
mortgage – a loan based on the equity in your home
 Provides elderly homeowners with tax-free income,
 Is paid back with interest when home is sold or homeowner
dies
 Disadvantages – spending the equity in your home
thereby reducing the amount of inheritance left to your
family

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Conducting a Financial Analysis
Review Your Assets
 Life insurance cash value can be converted into cash

or income (such as an annuity).

 Other investments, such as stocks and bonds.

 Take dividends instead of reinvesting

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Conducting a Financial Analysis

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Retirement Living Expenses
 Spending patterns and where and how you live will
probably change.
 Some expenses may go down or stop.
 Work expenses - gas, lunches out.
 Clothing expenses - fewer and more casual.
 Housing expenses - house may be paid off, but taxes
and insurance may go up.
 Federal income taxes
will probably be lower.

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Retirement Living Expenses

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Retirement Living Expenses
 Other expenses may go up
 Life and health insurance unless your
employer continues to pay them
 Medical expenses increase with age
 Expenses for leisure activities
 Gifts and contributions
 Inflation will raise the amount you need to cover your
expenses over your probable 1620 years in retirement

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Retirement Living Expenses

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Planning Your Retirement Housing

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Planning Your Retirement Housing
 Housing needs often change as people grow older
 Ease and cost of maintenance, nearness to public
transportation, shopping, church/synagogue and entertainment
become more important
 Staying in your present home is the preferred
alternative
 Canada Mortgage and Housing Corporation (CMHC)
offer the following programs to assist:
 Home Adaptations for Seniors Independence Program
 Emergency Repair Program
 Residential Rehabilitation Assistance programs
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Planning Your Retirement Housing
 For seniors who no longer want to live in their homes,
other alternatives are available:
 Adult lifestyle/retirement communities – independent
living residences for retirees or semi-retirees in a
community of healthy seniors
 Life lease housing – a form of housing tenure where a
tenant is given the right to live in a dwelling unit in return
for an upfront payment and monthly maintenance fees
 Retirement homes – private businesses that provide
seniors various combinations of accommodation, support
services, and personal care

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Planning Your Retirement Housing
Avoiding Retirement Housing Traps
If you plan to move when you retire:


 Email, write or call the local Chamber of commerce to learn

about taxes and the economic profile
 Check on provincial income and sales taxes and taxes on
pension income
 Subscribe to a local weekend edition paper
 Call a local accountant to find out which taxes are rising.
Check with local utilities to estimate your energy costs.
 Estimate what your utility costs would be in the area
 Rent for awhile instead of buying immediately
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Planning Your Retirement Income
Public Pensions
 Canada/Quebec Pension Plan (CPP/QPP)
 Provide disability benefits, retirement pensions, and
survivor benefits
 Contributions based on salary, maximum per year
 Can collect reduced benefits as early as 60
 Old Age Security (OAS)
 Must be over 65 years old
 Residency requirement

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Planning Your Retirement Income
Public Pensions
 Guaranteed Income Supplement (GIS)
 Payable to low income OAS recipients over 65 years
of age
 Survivor’s Allowance (SPA)
 Benefits to widow, widowers and spouses of OAS
beneficiaries who are between 6065

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Planning Your Retirement Income
Employer Pension Plans
 A plan that specifies the benefits the employee will
receive at the normal retirement age
 Employer’s contribution not specified
 Employer makes the investment decisions for your and
their contribution, but your benefit amount stays the
same regardless of how the investments perform.

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Planning Your Retirement Income
Employer Pension Plans
 Money purchase pension plan
 Specifies contribution from the employer and/or
employee
 Does not guarantee pension benefit you will receive
 Vesting is employees right to at least a portion of the
benefits accrued under an employer pension plan, even
if they leave employ of company before retirement.

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Planning Your Retirement Income
Employer Pension Plans
 Defined Contribution plans include the following:
 Employees can defer current taxation on portion
of their salary
 Money Purchase Pension Plans
 Employee Stock Ownership Plan
 Profit Sharing Plans

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Planning Your Retirement Income

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Planning Your Retirement Income
Employer Pension Plans
Deferred profit sharing plan includes:
 Contributions from employer only
 Tax-deductible for company
 Based on company’s net income
 DPSP holdings taxed when you withdraw them
 Contributions to DPSP are subtracted from allowable
RRSP contributions

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Planning Your Retirement Income
Group RRSPs:
 Property of employees
 Can take money out if you need it
 Participation may lower payroll tax withholdings

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Planning Your Retirement Income
Features of pension plan portability include the
following:
Legislation enforces right to transfer pension credits

from one employer to another

Three options when changing jobs:

 Leave credits and receive pension on retirement

 Transfer to new employer
 Transfer benefits to locked-in RRSP

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Planning Your Retirement Income
Personal Retirement Plans
 An RRSP is an investment vehicle that allows you to

shelter your savings from income tax

 Not a specific investment, but a way to register a

variety of investments to shelter funds

 Eligible investments include guaranteed funds, mutual

funds, life insurance, and life annuity products

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Planning Your Retirement Income
Registered Retirement Savings Plans include:
Types of RRSPs
 Regular
 Self-directed
 can invest in all categories
 Spousal
 spouse is named as beneficiary
Contribution Limits

 18% of earned income to a maximum amount
 Maximum amount to increase in years to come
 $26,230 by 2017
 reduced by RPP contributions
 can ‘carry forward’ unused room to later years
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Planning Your Retirement Income
Options when you deregister RRSP include:
Full withdrawal

 required to pay income tax

Annuity


 an investment that pays a fixed level of income on a

regular basis for either a specified period of time or
until death

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Planning Your Retirement Income

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Planning Your Retirement Income

Advantages of an Annuity Disadvantages of An Annuity

 Income payments until  Less control over investments
death  Less control over income
 Level payments payout
 Simple
 No inflation protections,
unless indexed
 No record-keeping  No opportunity for growth
 Legitimate tax shelter  No tax deferral
 No investment limits  No lump sums
 Tax-free transfers  No protection for spouse,
unless joint
 No estate planning benefits
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Planning Your Retirement Income
Options when you deregister RRSP include:
Life Annuities

 Full amount of your RRSP fund will be transferred

directly to the life insurance company
 Convert those funds into a lifetime income payable to
you
Fixed-Term Annuities


 Funds are converted into an income stream to be paid

out for a fixed term
 If you die prior to the end of the term the remaining
unpaid funds will be paid to your estate or beneficiary
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Planning Your Retirement Income
Options when you deregister RRSP include:
Registered Retirement Income Funds (RRIFs)

 Withdraw a minimum amount from the plan until you

reach the age of 71
 Increases incrementally to age 94
 Can adjust the amount and frequency of the payments
you receive
Life Income Funds (LIFs)


 Withdraw a minimum amount every year

 Subject to a maximum annual withdrawal amount
 Must be used to purchase a life annuity by end of year
you turn 80
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Planning Your Retirement Income
 Tax free savings accounts (TFSA)
 Introduced in 2009
 Must be 18 or older
 Must have a valid social insurance number
 Contributions are not tax deductible
 Plan grows tax free
 No tax upon withdrawal

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Planning Your Retirement Income
 Tax free savings accounts (TFSA) limits

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Living on Your Retirement Income
 Be sure you are receiving all the income you are
entitled to
 May need to make some changes in your spending
plans
 Take advantage of all tax savings and benefits available
to seniors
 May work part-time after retirement
 be aware of how earnings affect your public pension

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Living on Your Retirement Income
 Investing for Retirement: Low yield safe
investments must earn enough to keep up with or
exceed inflation
 Dipping into Your Nest Egg: Withdraw savings
with caution
 need to maintain enough to continue to live
comfortably
 may need to leave some in an estate for your heirs

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Living on Your Retirement Income

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Living on Your Retirement Income

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Summary
 Recognize the importance of retirement planning
 You will probably spend many years in retirement
 Public and private pensions may be insufficient to
cover the cost of living
 Inflation may erode the purchasing power of your
savings
 You should start retirement planning now and
before you reach the age of 40

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Summary
 Analyze your current assets and liabilities for
retirement
 Analyze your current assets (everything you own)
and your current liabilities (everything you owe)
 The difference in your net worth
 Review your assets to ensure they are sufficient for
retirement

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Summary
 Identify your retirement housing needs
 Where you live in retirement can influence your
financial needs
 Only you can determine the location and housing that
is best for you
 Would you like to live in your present home or move
 Consider the social aspect of moving

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Summary
 Determine your planned retirement income
 Evaluate your retirement expenses and adjust for
inflation using the appropriate factor
 Possible sources of income include:
 Canada Pension Plan
 Other public pension plans
 Employer pension plans
 Personal retirement plans

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Summary
 Develop a balance budget based on your retirement
income
 Compare your total estimated retirement income with
your total inflated retirement expenses
 If they are approximate you are in good shape
 If not determine additional income needed and
possible sources

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