Pre-retirement workshop
March 2014
Shafique Pirani, BA, CRM, EPC, CFP
Senior Education Consultant
Key Topics
• What retirement looks like today
• What does retirement mean to you?
• Next steps : how to prepare today for
tomorrow
my financial future
…how do I see my retirement?
You have four friends who are
all retired. How many will still
One
have a mortgage?
Almost 1 in 4 retirees
A. None
still
have
a
mortgage
B. One
C. Four
What percentage of men say
they will still be working at
32%they want to?
age 66 because
Apparently it’s a
A. 5%
“guy
thing”
B. 32%
C. 75%
In 1981 one in ten people were older
than 65. In 2016, how many people
will be over 65?
About 2 in 10
A. Still 1 in 10
B. About 2 in10
C. 8 in 10
… …what retirement looks like today
WHAT DO YOU WANT?
Converting dreams to reality
How much will your retirement lifestyle
cost and how will you get there?
What’s important to me?
Dreams
Wants
Needs
Your priorities will change
Your retirement has many parts
Stay the same
Expenses
Decrease
Increase
(keeping in line with inflation)
Groceries
Property taxes
Homeowner’s insurance
Utility bills
Rent
Vehicle
Life insurance
Mortgage
Savings for retirement
Savings for pension plan
No CPP/QPP/EI payment
Commute/parking
Work-related expenses
Taxes
Hobbies
Entertainment
Travel
Health care
Value of money – historical comparison
1980
A “basket” of goods and
services+
Cost of
a car
Cost of
a house
$100
$6,715
$110,292
TODAY
$271
$18,140*
$366,773**
The rule of 72: 72 divided by the estimated inflation rate – that is
approximately how many years it will take inflation to double your costs.
+ Inflation impact of the cost of groceries is measured by the CPI sub-index for food purchased from stores. Data source: Statistics Canada
* Canadian MSRP for a 2012 Honda Civic Sedan DX with air conditioning
**Average price for a detached bungalow in Canada, as at September 30, 2012.
my retirement lifestyle
… what will it cost?
Interesting facts
Four in five Canadians do not have
a written financial plan.
86% of Canadians with a group
savings plan would like more
advice.
Source: Sun Life Financial 2011 Unretirement™ Index Report
EVERYONE NEEDS A PLAN
(you already have one!)
Your retirement plan:
• A long term strategy customized to you and
your family designed to identify your future
retirement income
• Matches your risk tolerance
• Includes all possible sources of income
• Provides peace of mind
• Considers changes in lifestyle once retired and
the estimated costs
Understand where you are today
•
•
•
•
•
How are you saving
Do you contribute regularly
Do you “leave money on the table”
Are your investments diversified
Are there other saving options you should
consider
You and your spouse are
65 years old. What are the
chances that one of you reach
The age of 91 ?
How long should your money last?
65
Retirement
91
95
50% chance one 25% chance one
spouse will live to spouse will live to
age 95
age 91
Source: Canadian Institute of Actuaries – 1994 Uninsured Pensioner Mortality Table Projected to 2020.
How much pre-retirement income will you
need?
my money Retirement Planner
• Determine how much you
need to save now to
provide you with your
desired income level in
retirement
• Adjust a number of
variables as they change
over time by updating
your calculations in the
Retirement planner
• Does not take the place of
a real financial planner
my retirement lifestyle
…prepare today for tomorrow
Important considerations
• What will be your retirement income sources?
• Length of time you will rely on retirement
income
• Inflation / your money losing value
• Rate of return on your investments
• Unexpected expenses
Getting ready to retire
•
•
•
•
•
Switching saving to income
Income sources
Life and health insurance coverage
Understand what products are available to you
Understand your next steps to make retirement
a reality
Retirement income comes from many sources
Earliest
company
pension may be
available
Age 55
Earliest CPP is
available
Latest registered “savings” plans
must be converted to retirement
“income” plans
Earliest Old
Age Security
is available
Average
retirement age
60 61
65
71
Your personal savings
Work part time
Employer pension (defined contribution)
RRSP converted to income
Savings converted to income for life
Reduced CPP
Canada Pension Plan (for life)
Old Age Security (for life)
Government programs
CPP
Canada Pension Plan
OAS
Old Age Security
GIS
Guaranteed Income Supplement
Government programs
CPP
OAS
GIS
Age 65 or older
Lived in Canada for at least
10 years after reaching age
18
Canadian citizen or legal
resident
Must be receiving OAS
and have an income
less than $16,367
(single) or $21,647
(couple)
Eligibility
Age 60 or older
Made a
contribution
Payments
Based on how much Based on how long you
and how long you
lived in Canada as a
contributed
Canadian citizen or legal
resident
Only available for low
income Canadians
Government programs will represent approximately 25% of your retirement
income
CPP Payments
2014 maximum
2014 average
$1,038.33/month
$12,460/year
$594.19/month
$7,130/year
CPP Changes
Who is impacted?
• All employees currently contributing to CPP
AND
• All employees between age 60 and 70 who are
also receiving CPP payments
CPP Changes
What is impacted?
• Changes began in 2012 and are gradually rolling out
through 2016
• CPP retirement pension reduction = 0.6% per month
(2016)
• CPP retirement pension increase = 0.7% per month
(2013)
• “Work Cessation Test” no longer applicable
CPP - Things to consider
• Are you still earning income and are you contributing to
CPP?
• How long and how much have you contributed?
• What is the amount of CPP you will receive?
• Do you have other retirement income?
• Your health
OAS Payments
2014 maximum
2014 average
$551.54/month
$6,618/year
$515.97/month
$6,192/year
OAS full payment
100%
40 years of
continuous
residency since
age 18
OAS partial payment
Partial payment
Example
If you had 10 years you
would be eligible for 25% of
the OAS
100%
1/40 for each year of
residency since age 18
OAS Changes
Eligibility of age changing from 65 to 67
• No changes for anyone born on or before March 31,
1958
• No changes if you were 54 and older as of March 31,
2012
• Anyone born in February 1962 or later will be eligible at
age 67
• Gradual increase for all other birth years
Visit www.servicecanada.gc.ca to determine how you are impacted
OAS Changes
Voluntary deferral
• Effective July 1, 2013
• You can defer your OAS up to 5 years from your
eligibility – providing you have a higher adjusted
amount
• 7.2% per year or 0.6 per month
Your Usask savings plans may include:
How I save now
Defined Contribution
Pension Plan (DCPP)
converts to…
converts to…
Locked-in savings
Income once retired
• Annuity
• Prescribed
Retirement
Income Fund
(PRIF)
Retirement income options
ANNUITY
A contract issued by a life insurance company
A fixed sum of money paid to someone each year,
typically for the rest of their life.
PRIF
Your pension funds cannot be transferred to a PRIF
before the age of 55. Your spouse’s consent is
required. No annual maximum withdrawal limit.
Guaranteed Minimum
Withdrawal Benefit
(GMWB)
Adds insurance coverage to your retirement savings.
Provides guaranteed income for life. Your retirement
income won’t decline due to market fluctuations.
YOU CAN USE A COMBINATION OF THESE OPTIONS
The University of Saskatchewan
Custom PRIF/RIF
Competitive
rates &
management
fees
Allows for
transfers-in
No fees to
transfer
between
funds*
One-stop for
benefits &
savings
Convenient
preauthorized
payments
Free
guidance and
support
* Short Term Trading Policy: A 2% fee will be charged when a plan member initiates an inter fund transfer into a fund
followed by an inter fund transfer out of the same fund within 30 days.
The University of Saskatchewan Group
Retirement Fund
• Due to your participation in your group plan,
you can join the University of Saskatchewan
Group Retirement Fund
• Investment fees are substantially lower that retail products
(like you’re used to with your current group plan)
• Same great investment options
• Continued access to the Customer Care Centre and Plan
Member Website
Fee advantages
• One of the greatest benefits of transferring your retirement
savings into the University of Saskatchewan Group Retirement
Fund is the low fund management fees you pay for your
investment funds
• You’ll pay fund management fees that are significantly lower than
those you would pay as an individual investor at a mutual fund
company or other financial institution
• That’s the benefit of belonging to a group plan- more bargaining
power than you would have on your own. That fee difference can
have a large impact on the growth of your retirement income
Low management fees matter
Money Market
0.84%
Fixed Income
1.71%
Canadian Equity
2.42%
U.S. Equity
2.58%
International Equity 2.49%
Annuity - Overview
• Series of future payments in exchange for a lump
sum today
• Irrevocable once purchased
• Sensitive to interest rates at time of purchase
• Once your beneficiary passes on, payments will
cease under most circumstances
• Does not require active management
• Is not affected by financial markets
Annuity- Features
• Life annuity - Annuity continues for your entire life
• Joint life or last survivor - Includes your spouse and
only ends once the last person dies
• Guarantee period - The length of time that the
annuity payment is guaranteed to be paid to your
estate
• Inflation protection – Increases each year by inflation
to protect your purchasing power throughout
retirement
Savings required to obtain a monthly
income of $1,000
Example
$237,163
$220,449
$208,676
$192,203
60 yrs old
65 yrs old
Female
Male
Source: my money annuity premium calculator
Assumptions: Individual Life Annuity with a guaranteed period of 10 years
How much monthly income from $100,000?
Single Life Annuity and Joint Life Last Survivor
Annuity
Single Life
Joint Life Last Survivor
$422
Age 60
Age 60
$454
$404
$479
Age 65
$520
Female
Male
$393
$445
Age 65
$459
Female Annuitant / Male Spouse
Male Annuitant / Female spouse
Source: my money annuity premium calculator
Assumptions: Single Life Annuity – Amount is guaranteed to be paid for a minimum period of 10 years.
Joint Life Last Survivor – Amount is guaranteed to be paid for a minimum period of 10 years and payable at the rate of 60% of the initial
amount to your spouse.
Annuity vs. PRIF/RIF
FEATURE / RISK LEVEL
ANNUITY
PRIF/RIF
GUARANTEED INCOME
Guaranteed for
life
Not guaranteed for
life
INVESTMENT CHOICE
None
Yes
MARKET RISK
None
Some
INFLATION RISK
Varies
Some
DEATH BENEFIT
Varies
Market Value
Understanding your insurance needs
Working years
Retirement years
Long term care insurance
Critical illness insurance
Disability insurance
Personal health insurance
Income protection
25
30
Retirement income protection
Retirement income protection
40
55
65
75
85
95
How to maintain life insurance coverage
My LIFE Choice (for members under age 65)
Features
• My LIFE Choice allows you to continue competitive coverage
similar to what you have under your group plan, up to $1 million
• No medical exam, and no appointment is necessary
• Optional accidental death coverage is also available
Eligibility
•
•
•
•
How to
purchase
• Available over the phone through the Client Solutions Centre
• You will be asked a few simple health questions to determine
eligibility and the level of coverage you qualify for
You and/or your spouse must be age 65 or under
Within 60 days of leaving your employer’s group plan
Pass a few simple health questions
You must be actively at work the day your employee group
coverage ends
Contact a Retirement Specialist at 1-855-864-5989 to discuss conversion of existing
insurance to continue coverage.*
*To guarantee up to $200,000 of life insurance coverage, application must be done
within 31 days of group coverage ending.
Maintaining health insurance coverage
My Health Choice
Features
• Continue health and dental coverage for you, your
spouse and dependent children
• No appointment is necessary and no medical exam is
required
• Best Doctors® allows you to connect with top specialists
should you become seriously ill
Eligibility
• Between the ages of 18-74
• You must be actively at work the day your employee
group coverage ends
• Apply within 60 days of the date your employee group
coverage ends
How to
purchase
Contact a Retirement Specialist at 1-855-864-5989.
Next steps
Important considerations
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•
•
•
•
•
•
Making your money last
Retirement age vs. government income options
Income tax
Working part-time vs. full retirement
Health and life insurance coverage
Ongoing retirement plan management
Leaving a legacy
Put your plan in to action
•
•
•
•
Talk with your family
Use tools available
Review your group savings plan
Consider your other investment and insurance
needs.
Calculating your savings and expenses?
• Retirement expense
calculator:
www.myretirementcafe.ca
Online tools
Online
mysunlife.ca
myretirementcafe.ca
Brighterlife.ca
• Self-service tools available online
• Educational articles and videos
• Financial planning tools available at
mysunlife.ca including:
•
•
•
•
Retirement Planner
Investment Risk Profler
OAS clawback calculator
Registered Retirement Income Fund
(RRIF) calculator
• Annuity premium calculator
Thank you!