LO#5
Learning Objective # 5
Determine your planned retirement
income.
LO#5
Planning Your Retirement Income
Public Pensions

Canada/Quebec Pension Plan (CPP/QPP)




Provide disability benefits, retirement pensions and survivor
benefits
Contributions based on salary, Maximum per year
Can collect reduced benefits as early as 60
Old Age Security (OAS)


Must be over 65 years old
Residency requirement
LO#5
Planning Your Retirement Income
Public Pensions

Guaranteed Income Supplement (GIS)


Payable to low income OAS recipients over 65 years
of age
Survivor’s Allowance (SPA)

Benefits to widow, widowers and spouses of OAS
beneficiaries who are between 60 - 65
LO#5
Planning Your Retirement Income
Employer Pension Plans - Defined Benefit
 A plan that specifies the benefits the
employee will receive at the normal
retirement age
 Employer’s contribution not specified
 Employer makes the investment decisions for
your and their contribution, but your benefit
amount stays the same regardless of how the
investments perform.
LO#5
Planning Your Retirement Income
Employer Pension Plans - Defined Contribution




Money purchase pension plan
Specifies contribution from the employer and/or
employee
Does not guarantee pension benefit you will receive
Vesting is employees right to at least a portion of
the benefits accrued under an employer pension
plan, even if they leave employ of company before
retirement.
LO#5
Planning Your Retirement Income
Employer Pension Plans - Defined Contribution

Defined Contribution plans include the following;
 Employees can defer current taxation on portion
of their salary



Money Purchase Pension Plans
Employee Stock Ownership Plan
Profit Sharing Plans
LO#5
Planning Your Retirement Income
Deferred Profit Sharing Plan
Contributions from employer only
Tax-deductible for company
Based on company’s net income
DPSP holdings taxed when you withdraw
them
 Contributions to DPSP are subtracted from
allowable RRSP contributions




LO#5
Planning Your Retirement Income
Group RRSP’s
Property of employees
 Can take money out if you need it
 Participation may lower payroll tax withholdings

LO#5
Pension Plan Portability


Legislations enforces right to transfer pension
credits from one employer to another
Three options when changing jobs



Leave credits and receive pension on retirement
Transfer to new employer
Transfer benefits to locked-in RRSP
LO#5
Personal Retirement Plans
Registered Retirement Savings Plans
 An RRSP is an investment vehicle that allows you to
shelter your savings from income tax
 Not a specific investment, but a way to register a
variety of investments to shelter funds
 Eligible investments include guaranteed funds,
mutual funds, life insurance and life annuity
products
LO#5
Registered Retirement Savings Plans

Types of RRSP’s


Regular
Self-directed


Spousal


can invest in all categories
spouse is named as beneficiary
Contribution Limits


18% of earned income to a maximum amount
Maximum amount to increase in years to come



$22,000 by 2010
reduced by RPP contributions
can ‘carry forward’ unused room to later years
LO#5
Options When You Deregister RRSP

Full withdrawal


required to pay income tax
Annuity

an investment that pays a fixed level of
income on a regular basis for either a
specified period of time or until death
LO#5
Options When You Deregister RRSP
Advantages of an Annuity







Income payments until
death
Level payments
Simple
No record-keeping
Legitimate tax shelter
No investment limits
Tax-free transfers
Disadvantages of An Annuity








Less control over investments
Less control over income
payout
No inflation protections,
unless indexed
No opportunity for growth
No tax deferral
No lump sums
No protection for spouse,
unless joint
No estate planning benefits
LO#5
Options When You Deregister RRSP

Life Annuities



Full amount of your RRSP fund will be transferred
directly to the life insurance company
Convert those funds into a lifetime income payable to
you
Fixed-Term Annuities


Funds are converted into an income stream to be paid
out for a fixed term
If you die prior to the end of the term the remaining
unpaid funds will be paid to your estate or beneficiary
LO#5
Options When You Deregister RRSP

Registered Retirement Income Funds (RRIFs)




Withdraw a minimum amount from the plan until you
reach the age of 71
Increases incrementally to age 94
Can adjust the amount and frequency of the payments
you receive
Life Income Funds (LIFs)



Withdraw a minimum amount every year
Subject to a maximum annual withdrawal amount
Must be used to purchase a life annuity by end of year
you turn 80
LO#5
Options When You Deregister RRSP

Segregated Funds




Sold exclusively through life insurance companies
The purchase of units representing a share in a pool of
assets supervised by a fund manager
The funds are kept separate from the company’s other
assets
Advantages over mutual funds include;


If you die your fund’s assets go directly to your beneficiary
Percentage of your capital is guaranteed