In most countries around the world, the idea of a fixed retirement age was introduced during the late 19th and early 20th centuries—before then, the absence of pension arrangements meant that most workers continued to work until death, or relied on personal savings or the support of family or friends. Today, with workplace and government pensions plans, people can afford to stop working, with the average age of retirement in Canada currently being 62.
While your lifestyle will determine how much we need to save for retirement, a basic rule of thumb is to maintain 60 to 70 percent of your income at retirement. Retirement income can come from a variety of sources: company pensions plans, government pensions, and personal savings (which may include using one’s home as part of the retirement plan).
- Old age security. OAS provides a monthly pension to most people over 65 who have lived in Canada for at least 10 years. The Old Age Security program also provides other benefits for low-income seniors such as the Guaranteed Income Supplement (GIS). The basic OAS pension is not based on income; it is a taxable, fully indexed benefit (adjusted quarterly to keep pace with inflation) available to all Canadian residents 65 and older. Your employment history is not a factor in determining eligibility, nor do you have to be retired (you can continue to work and still receive the benefit). To get the basic OAS benefit, you have to apply for it at least six months before your 65th birthday. In recent years, OAS benefits have been “clawed back” – meaning higher income pensioners have to pay back all or part of the benefit at tax time.
- Canada Pension Plan and Quebec Pension Plan. CPP and QPP can provide Canadians with a retirement pension as early as age 60. This Plan also offers disability, survivor, and death benefits. The amount of the pension or benefit depends on how much and for how long a person contributes to CPP. With very few exceptions, every person in Canada over the age of 18 who earns a salary must pay into it. CPP operates in every province and territory except Quebec, which has a similar program. CPP monthly retirement pensions are adjusted for inflation every January to keep up with increases in the cost of living. This pension is not started automatically; you must apply for it at least six months before you want it to start. Together, OAS and CPP are designed to provide a secure and modest base upon which to build additional retirement income. They are not intended to meet all the retirement income needs of Canadians.
- Employer-Sponsored Pension Plans. There are several different types of plans, so if you have any questions about what you will receive from your employer make an appointment with someone in your Human Resources department to discuss your situation.
- Personal Savings . You can provide for yourself through your own savings program that includes Registered Retirement Savings Plans (RRSP) and other investments and savings. An RRSP allows you to save on a tax-deferred basis, allowing the money you put into the plan to accumulate with investment income tax-free. RRSPs let you save for your retirement and help reduce personal income tax. When you withdraw your money after you retire, all withdrawals are fully taxable, but your rate should be lower than when you were working and collecting a salary.
- Non-registered investments include savings accounts, GICs, mutual funds, stocks, and bonds.
- Reverse mortgages. This is an option for homeowners, 62 or older, who want to increase or supplement their monthly income while continuing to live in their homes. Homeowners take out a mortgage on their home and use the proceeds to buy an investment that provides them with income. When they die and the property is sold, the proceeds are used to pay off the mortgage.
Exercise: Developing a Retirement Budget
In a notebook, list all of your current housing and living expenses and then estimate what you think you will need when you retire.
The next step is to determine your retirement income. This is where you might want to get some professional help either through your employer or through a financial planner.
Finding a Financial Advisor
Here are some things to consider when looking for a financial advisor who is right for you:
- What are his/her qualifications?
- Are you comfortable talking about your personal finances with this person?
- Does he/she take time to explain things, offer helpful information, and respond to your concerns and questions?
- Does he/she understand your financial needs and goals?
- What are the fees and how are they charged?
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- Klontz, B., & Gresham, M. (2012). Face the numbers: Moving beyond financial denial. Retrieved October 1, 2018 from: https://www.apa.org/helpcenter/financial-avoidance.aspx
- Seaward BL. Resource management: Managing time and money (2018). In: Managing Stress: Principles and Strategies for Health and Well-Being. 9th ed. Burlington, Mass.: Jones & Bartlett Learning.
- Shapiro, G.K., & Burchell, B.J. (2012). Measuring Financial Anxiety. Journal of Neuroscience, Psychology and Economics 5(2), 92-103.