How will you fund your retirement?

Retirement - the thought of this can be equally exciting and terrifying, and something that everyone will eventually transition to. 

The idea of retirement can have a different meaning for different people. It could range from quitting your job cold-turkey to transitioning to a reduced work schedule to shifting gears and trying something completely different.

Over the last 24 years of helping clients make this transition, I have found there are several common components to a successful retirement plan no matter what your vision of retirement is.

 Seven Income Components to a Successful Retirement Plan 

1. Canada Pension Plan (CPP)
   A lot of people ask me is this going to be around when I retire, and I can tell you “YES, it will.” The government has made many changes to the Canada Pension Plan program over the last number of years. One change is that the government is taking more off your paycheck, and your employer is paying more into the CPP fund. They’ve also expanded the investment capabilities that the CPP Investment Board can invest in, which makes this sustainable for a longer time. You can start taking your CPP as early as age 60 and as late as age 70, with most people starting to draw on it around age 65.
2. Old Age Security (OAS)
   This is based purely on your residency in Canada since you turned 18. You don't pay into OAS but if you start making too much money, you can get clawed back. This creates an opportunity for us to help you make sure that we keep as much money in your pockets instead of repaying it to the government. 
3. RRSPs
   These provide an opportunity for you to claim great tax deductions while you're working, though there is an annual maximum contribution amount. The idea is to put money in at the high tax bracket and take it out at a lower tax bracket, and the differential is what you keep in your pocket.  You have to convert your RSP to a RIF as late as age 71 and you have to start drawing money out. It is important to have a plan to strategically get that money out of your RRSP as you could be in a situation that you are in the same or higher tax bracket in retirement.
4. Registered Pension Plans (RPP)
   If you are fortunate enough to work for an employer that has a defined benefit or defined contribution pension plan, you're in the minority. RPPs are something that a lot of employers have been moving away from due to liability. If you do have one, this will be an integral part of your financial plan. There could be a number of different options for the income when you decide to turn it on, and it is very important that we discuss your options in detail to make sure the right decision is made, as you cannot change it down the road. 
5. Non-registered investments
   As the name states, these accounts are not registered – this means there are not any limits on the amount that you can contribute or tax breaks on the money invested. One challenge with these accounts is, as the money grows, you have to pay tax on the growth. This can be a combination of capital gains, interest, or dividends. Depending on your tax bracket, this will determine how much tax you have to pay on this income, and this is an opportunity to focus on tax efficiency. 
6. Tax-Free Savings Accounts (TFSA)
   This is one of my favorite programs, but you have to remember that you have a maximum that you can contribute. The limit for TFSA’s for 2021 is $75,500 and you want to make sure you fully utilize this program and look at some investment options and maximize your growth depending on your risk tolerance.
7. Real Estate
   This can be a combination of rental properties, vacation property, or your principal residence that you sell and downsize at retirement.  There are pros and cons to real estate and if you have a second property, you could be looking at some tax and estate planning concerns.  If you are interested, please let us know and we have a great webinar that talks about these concerns that you may really enjoy!

These seven components make up your income at retirement. When it comes to your plan, we want to focus on assets, liabilities, income, and expenses to make sure your retirement will be as successful as possible. 

If you ask yourself “will I have enough money to retire”, or “will I run out of money in retirement” please reach out to us and we would be happy to prepare a comprehensive retirement plan for you.