Retirement

Accumulate necessary capital

Will You Have Enough

In order to maintain the lifestyle you’re accustomed to when you retire, you will need an annual income equivalent to roughly 70% of your gross salary at retirement.

Why 70%? Because certain expenses disappear or decrease once you stop working, e.g. professional or union fees, transportation, clothing, etc.

We use 70% as a target. Retirees who are particularly fit and active will want to have a little more flexibility – anywhere from 75% to 85%. It all depends on your plans.

Lengthy Retirement

Many people prefer to leave the job market early, often once they have reached their 50s.

Moreover, advances in medicine continue to extend life expectancy; 79 years for men and 83 years for women, according to Statistics Canada.

As a result, retirement today can last up to 25, even 30 years – in other words, approximately the same length as your active working life.

However, during these two to three decades of freedom, inflation will chip away at your purchasing power. The Consumer Price Index can be expected to rise at an average annual rate of 2%.

Your advisor will be able to provide you with detailed financial projections to paint a clearer picture.

Sources of Income

As you approach or once you have reached retirement, you will qualify for certain benefits offered through public programs:

  • Quebec Pension Plan or Canada Pension Plan
  • Old Age Security pension and, if applicable, Guaranteed Income Supplement

These benefits are only intended to ensure a minimum subsistence level and are subject to limits being easily reached. In other words, they should not be your sole sources of income.

You may be among those who belong to an employer sponsored retirement savings plan, also known as a pension fund.

These plans include annuity payments of varying amounts. Certain circumstances (redundancy, dismissal or early retirement) will lead to smaller payments.

Consequently, personal savings, investments included, are quite important in sound retirement planning:

  • RRSP and TFSA
  • Non-registered accounts
  • Primary and secondary residences
  • Rental properties

A Registered Retirement Savings Plan is Essential

Of all of the financial options you have at your disposal when planning this crucial part of your life, the Registered Retirement Savings Plan (RRSP) is, without a doubt, the best known and most popular option.

Who would say no to a making a contribution to a savings plan that is 100% tax deductible and more often than not, leads to a tax refund?

For any given year, you may contribute up to 18% of the income you earned in the previous year.

There is a maximum limit, however, set at $26,230 for 2018.

Should you invest less than the authorized maximum for a particular year, you will accumulate unused contribution room that carries forward to subsequent years.

Almost all investments are permitted, including money market securities, stocks, bonds, and investment funds.

In addition, it is possible to contribute through regular instalments, a simple and practical option.

If you are young, your investment horizon affords you the option of choosing riskier investments, namely in the stock market, which offer long term potential.

If you’re nearing retirement, your best option may be investing in a conservative portfolio in order to protect your assets.

Retirement is complicated - Make it simpler by speaking with an advisor

CANSIM 2012-05-31

Statistics Canada CONSUMER PRICE INDEX FOR CANADA, MONTHLY (V41690973 series) from 1990 to 2016