Retirement might feel far off, but it’s never too soon to start planning and begin saving. The earlier you start saving, the less you’ll have to set aside each month and your money will have longer to earn a larger amount of compound interest.
How do you begin proactively planning and saving for retirement? What types of retirement income and benefits are you entitled to? And how do you know when you’ll be ready to retire? We’ve outlined a few tips below.
Plan Ahead so You’re Not Left Behind by…
Setting clear retirement goals. Are you planning on staying in your current home or downsizing? Are there vacations and bucket list items you hope to check off? Will you be picking up a new hobby? Buying a cottage? Are you considering getting a part-time job?
Comparing your current spending with expected retirement spending—and calculating accordingly. If you have a three-month trip to Europe on your mind, or a sudden interest in expensive pinot noirs from Burgundy, you might have to adjust your retirement budget from your current one. It’s also a good idea to plan for unexpected expenses and set some emergency funds aside.
Deciding when you will retire & collect CPP—There are many factors to consider here, including your health, your financial situation, and your spouse or partner’s plans. (For example, if you’re healthy, expect to live a long life, or have access to other sources of income, you may choose to start receiving your CPP retirement pension later. This will result in a larger monthly pension, which could help protect you from outliving your savings).
Knowing the perks—like bank accounts with lower fees for people over 60 years old, or senior discounts on everything from restaurant meals to vacation packages.
Types of Retirement Income and Benefits
Canadians are entitled to a number of benefit and retirement plan options, including:
CPP retirement pension
Every Canadian begins contributing to the Canada Pension Plan as soon as they enter the workforce. You can start collecting this pension as early as age 60 or as late as age 70 (although the standard age is 65). The amount of money you’ll receive each month depends on the age you decided to collect, how much and for how long you contributed to the CPP, and your average earnings throughout your working life.
Old Age Security
A pension you can receive if you are 65 years of age or older and have lived in Canada for at least 10 years, even if you have never worked.
Guaranteed Income Supplement
A benefit you may be eligible to collect if you are an Old Age Security recipient with low income.
Registered Pension Plan (RPP)
Arranged by an employer or a union to provide pensions to retired employees in the form of periodic payments.
Pooled Registered Pension Plan (PRPP)
A retirement savings option for individuals that enables its members to benefit from lower administration costs that result from participating in a large, pooled pension plan.
Registered Retirement Savings Plan (RRSP)
A retirement savings plan that you and/or your spouse or common-law partner may contribute to until you turn 71 years old. Deductible RRSP contributions can be used to reduce your tax. When you turn 71, you must choose to withdraw them, transfer them to a RRIF, or use them to purchase an annuity.
Retirement Income Calculator
A helpful tool when sorting through your retirement income from various sources is the Canadian Retirement Income Calculator. Through a series of various modules, it can help you form an estimate of how each pillar of the retirement income system will contribute to your future financial security. It also allows you to see the impact of the changes you make in how you save.
Talk to an Expert
The waters of retirement can be difficult to wade through, and it can be useful to speak with a financial advisor or accountant who understand the process. Vexxit can easily help you connect with a professional to answer all of your retirement questions.