my money
At a Glance
Helping You Understand Financial Planning and Investments
Retirement – planning tips to help you get there
RRSP season and the tax filing deadline has come and gone. But now is
the perfect time to start thinking about the money you are investing for
retirement and what steps you can take to help you get there sooner.
Here are some helpful tips to help make your financial transition to
retirement a smooth one.
>> Consider your retirement income sources
The years leading up to retirement are a good time to assess how much you’ll receive from each of your potential income sources, since projections are typically more accurate as you near retirement. You’ll likely be relying
on three main sources for your retirement income.
■ Full government benefits – about
$16,265 each year. Government
pensions consist of the Canada or
Quebec Pension Plan (CPP/QPP)
that all working individuals
contribute to, and Old Age Security
(OAS) which is a non-work related
pension paid to which most
Canadians (or legal residents) at
age 65 are eligible.
With the CPP/QPP, the current
maximum pension payable at age
65 is about $10,365. You can start
receiving the CPP/QPP benefit as
early as age 60, but the benefit
amount is reduced.
The OAS benefit commences
for most Canadians (or legal
residents) at age 65 and the
current maximum is about
$5,900 per year. The benefit is
subject to residence requirements
and income levels. For example,
the amount reduces if you have
an annual net income level of
over $63,511 and you won’t
receive any OAS benefit if your
income is over $102,865 per year.
■ Employer pension plans. Employer
pension plans fall into two main
categories: defined benefit plans
and defined contribution plans.
Defined benefit plans pay a predetermined benefit at retirement
which is generally based on your
years of service and pre-retirement pay. To determine the annual income you might be able to
expect from this source, ask your
pension plan administrator to
provide an estimate of the
amount of pension you’ll receive
upon your retirement.
Continued
Group retirement services are provided by Sun Life Assurance Company of Canada, a member of
the Sun Life Financial group of companies. © 2007, Sun Life Financial. All rights reserved.
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>> Keep track of your expenses
(cont’d)
Defined contribution plans are
savings accumulation plans that
you must use to generate retirement income. If you want a conservative “ballpark” estimate of
what this pool of money can generate in annual retirement
income, take 5% of the current
value of your holdings in the
plan. But keep in mind that the
actual income you’ll receive from
this source can vary greatly
depending on your retirement
age, the type of retirement
income vehicle you choose, and
your investment returns.
■ Personal and other workplace
savings. The remainder of your
retirement income will come
from your personal and other
workplace savings, which include
all your non-pension savings
such as your group RRSP, your
personal RRSP and any non-registered savings you’ve accumulated.
You’ll have more flexibility in
terms of how much you can draw
from these sources in retirement,
but again, as a conservative
estimate, take 5% of your total
savings as the annual amount you
can take as retirement income.
i
With the possibility of lower income in retirement, and higher interest
rates in the future, a heavy debt load could impact your retirement
lifestyle. So as you approach the end of your employment income years,
you should consider reducing the debt you carry as much as possible.
Bridging the gap
What if your calculations show that you won’t have enough retirement
income to meet your lifestyle goals? If that’s the case, here are some
steps you may want to consider to bridge the gap:
● Boost your savings levels. Systematically setting aside extra money
each month and investing it may allow you to reach your income
goal by the time you retire.
● Work part-time in retirement. Even a modest level of income from
employment can make a significant difference in bridging the gap
between the income you need and the income you’re able to generate.
● Delay your retirement. Every year you delay your retirement is one
less year you need to fund with retirement income, and if you delay
receiving your CPP/QPP benefit, your benefit amount will increase
by 6% each year (to as late as age 70).
Need help getting on the right track? Consider the services of a qualified financial planner – it may be one of the best investments you
make in your financial future.
>> Monitor your investment choices,
are they right for you?
An investment strategy matters just as much in retirement as it does
during your retirement savings years. While equities offer higher potential
returns than other types of investments – and can still play an important
role in retirement – your ongoing need to draw on your savings means
you’ll have less time to ride out any short-term fluctuations in the equity
markets. As part of your retirement preparations, you may need to
modify the asset mix in your portfolio so that you have more secure
income-producing investments to meet your cash flow needs.
If you have a general question or suggestion about this newsletter, please send an e-mail to can_pencontrol@sunlife.com or write to my money
At a Glance Newsletter, Group Retirement Services Marketing, Sun Life Financial, 225 King Street West, Toronto, ON M5V 3C5.
This bulletin has been created exclusively for you. It addresses issues to help you with your financial planning and investments, and cannot be
reproduced in whole or in part without the express permission of Sun Life Financial.