Last week we talked about how much money you will need in retirement. Today, consider what sources of funds you may already have. There are three basic sources of retirement funds to think of:
1. Money from the government
Most of us will be able to get money through one or more government plans, but you have to apply and be approved. There are three major plans:
Canada or Quebec Pension Plan (CPP/QPP):
Provides a monthly payment starting as early as your 60th birthday. What you get depends on what you paid in to the plan while you were working, and your age when you start getting your monthly payment.
Old Age Security (OAS):
Provides income to Canadians age 65 and up. What you get depends on your other income, and how long you’ve lived in Canada.
Guaranteed Income Supplement (GIS):
Helps Canadians with lower incomes.
You must be 65 or older, and you must apply each year. What you get depends on how much other income you have, as well as your spouse’s income, if applicable.
The most a person would receive today from the government is about $15,000 a year. That amount may go up if you qualify for low-income programs. Amounts may also be higher for couples.
2. Money from a pension plan or retirement savings at work
About half of all working Canadians get help with saving for retirement from their workplace. This may be through a pension plan or a group RRSP. Whenever possible, take full advantage of employer matching programs. If you have a pension plan, make sure you find out what it offers and how it will work with your other income sources.
3. Any current savings or investments
Your own savings can play a key role in getting ready to retire. You may have already been setting aside money for retirement, or you acquired funds through sale of an asset or an inheritance.
Subtract your expected earnings from government or other pensions from your total retirement needs. If you’re lucky, you have a workplace pension that meets your needs, however most Canadians do not, and will have to set up their own savings plan.
Our next post will look at translating your yearly required retirement income into a retirement savings plan.
Tagged as:
retirement planning
This week is Financial Planning Week in Canada and National Save for Retirement Week in the United States. Add those to the fact that October is Investor Education Month in Canada, and is there really any better time to talk about retirement planning?
In a recent survey, 65% of Nova Scotians (similarly 66% of Canadians) agreed that it was important to have a financial plan and 90% of Nova Scotians (85% Canadians) agreed it was important to build up your own personal savings, whether through a pension plan or otherwise.
Yet, 75% of Nova Scotians do not have a financial plan, and 59% expressed concern that they will not have enough money to meet their goals.
How do we move from knowing what to do, to getting it done? There is no easy answer. A good place to start though, is to set goals and figure out what it is you need to accomplish.
Saving for retirement can seem daunting. Often, the figures we have in mind are so huge, we fear we will never achieve them. It is important to sit down and calculate a realistic estimate of your retirement needs. You may do this on your own, or with a financial adviser. There are three simple ways to do this:
1. Use a simple guideline based on what you make now
One simple guideline is that after you retire, you will need between 60% and 80% of what you earned in the years right before retirement. The closer you are to the 80% mark when you retire, the more comfortable you will likely be after you retire.
2. Look at what the research tells you
Statistics Canada has looked at the different lifestyles Canadians have after they retire and how much it costs to live these lifestyles. The numbers are fascinating, and you can use them to estimate your own income range. To learn more, read What will life be like after I retire? from the Investor Education Fund.
3. Make a detailed budget
Here you write down exactly what you think you will spend each month on housing, food, entertainment, health, gifts, and other expenses, and then add it all up. The further you are from retirement, the more difficult it may be to judge your expenses, so it may be easier to work with steps 1 or 2.
In upcoming posts, we will consider the sources of retirement income we may already have, and look at how to translate the yearly salary you want in retirement into the amount of savings you need to accumulate.
Tagged as:
financial goals,
pension,
retirement planning
