Planning for Retirement in Canada
For a couple to retire comfortably in Victoria, they will need approximately $4000-$5000/month in retirement income after taxes. So where would your income in retirement come from?
The Canadian government provides two public pensions to Canadian residents to help with basic financial needs in retirement:
- Canada Pension Plan (CPP) will be based on how much and how long you’ve contributed to it during your working years. It’s supposed to replace ~25% of your working income. Immigrants who started working in Canada mid-career will get less than people who’ve worked here their entire lives.
- Old Age Security (OAS) is based on how long you’ve lived in Canada. You need to have lived in Canada for a minimum of 10 years by age 65 in order to qualify. If you’ve lived here 10 out of 40 years, then you only get 25% of the maximum OAS amount. 2016’s OAS maximum is $570/month.
For lower-income couples, a low OAS benefit may help you qualify for higher Guaranteed Income Supplement (GIS) or Allowance retirement benefits. We can provide more guidance on these.
Many Canadians start preparing for retirement many years ahead by working with a Financial Advisor to advise on investing for their future retirement:
- Personal investment and savings accounts. We help clients decide which types of accounts would be most suitable for their financial situation. Investment options include:
- Tax-free accounts (TFSA) – Allow investments to grow without tax implications, even when withdrawing money in the future
- Registered Retirement Savings Plans (RRSP) – Every contribution gives you a tax deduction against your annual income taxes. Investments grow tax-free, but you will pay taxes when you withdraw funds in the future
- Non-Registered accounts – Investment accounts with less restrictions. You pay taxes on any capital gains, income and dividends earned
- Pension or Group RRSP – We can explain how your work pensions and group RRSPs operate. Typically, these plans work by you contributing a percentage of your income, and your employer contributing a specified percentage (free money), based on your annual income. When you leave your job, we can transfer the pensions/group RRSPs to your personal investment accounts. When you retire, we provide guidance to help you choose the best pension retirement option.
One of our retirement planning goals is to ensure you are paying the least amount of tax during your retirement. We accomplish this through strategic use of the current tax laws. The lower your taxable income in retirement, the more free government benefits you can qualify for. In our experience, the clients that have had the most success at achieving a reasonable retirement income are not always those who have the highest employment income, but those who take advice early on.