There are two questions quite often asked of a financial advisor. The first - What is my retirement income going to look like? The second - Will it be enough?
Retirement Planning is one of the six financial planning areas where a Certified Financial Planner is required to have a high degree of competence and ability to offer advice on. However retirement ‘income’ is not the only thing we have to plan for when thinking ahead to retirement. There are a number of things, not all financial, that one needs to consider. Many of which do impact finances. How will I mentally prepare for retirement? Will I wean into retirement? This can have both mental and financial benefits. What activities do I hope to engage in to maintain my mental and physical well-being, in other words, how will I spend my time? I need to take stock of family priorities. I need to consider where I will live. How would I deal with unexpected changes in my health or that of my spouse? What if my spouse passes away unexpectedly? These are all important matters which need to be thought about. Today though, we’ll just focus on retirement income.
As Canadians we are blessed to have two government pensions that will provide most of us with a decent base level of retirement income. The Old Age Security (OAS) program is universal and almost everyone qualifies for it. The Canada Pension Plan (CPP) is a pension that all Canadians who are employed contribute into. The amount you will receive in CPP is based upon how much you’ve contributed over the years and there is a maximum you can receive. At the most, these two government programs provide a base income in retirement of approximately twenty thousand dollars per year. As you near retirement age there are decisions that can be made around CPP and OAS such as; do I begin CPP early or do I defer my CPP and OAS? All decisions have tax implications and impact the amount you’ll receive. Your income requirements, health and life expectancy are considerations to take into account.
Aside from CPP and OAS income, the rest is up to us. You are fortunate if you have an employer pension. Most people without a private pension need to rely on putting savings away into Registered Retirement Savings Plans (RRSP), Tax-Free Savings Accounts (TFSA) or other non-registered savings vehicles. The type of accounts that you use, and the investments you put into these accounts, are matters which are very important to speak with your financial planner about. There are a number of pre-retirement and post-retirement tax considerations to determine what account will provide you with the greatest benefit. The investment products in your retirement savings portfolio should align with your investment objectives, risk tolerance and your time horizon.
I would be remiss if I did not make mention of Registered Disability Savings Plans (RDSP). The RDSP is a government matched savings plan specific for people with disabilities. It is designed as a long-term savings plan to help the holder be better financially prepared for the future. To be able to open an RDSP the holder (or beneficiary) must qualify for the Disability Tax Credit. The government contributions to the RDSP are very generous. The conditions covered have expanded in recent years. It may be worth your while to check into them.
Income in retirement can be complicated because it comes from so many sources compared to your working years. There are many variables that need to be carefully considered so that you optimize available government pensions and benefits as well as optimize tax saving strategies before and into retirement. It is also very important that the investments you hold in the accounts that you use to save for your retirement are properly aligned to both grow and to protect the assets that will one day provide you with your retirement income.
Christian Credit Union advisors are here to help you plan and forecast your own retirement income. If you are curious about what your retirement income is going to look like, or if you are already in retirement and are wondering if you are doing things as well as you could be, call us and we will sit down over a cup of coffee and have a look together. We would love to hear from you.
David van Berkel, CFP®, CKA®
Christian Credit Union
Credential Asset Management Inc.
Mutual funds and related financial planning services are offered through Credential Asset Management Inc.