COPYRIGHT © 2008 by Nelson, a division of Thomson Canada Ltd

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Chapter 12 – Planning for Retirement

Chapter 12 – Planning for Retirement

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Chapter 12 - Learning Goals

LG 1 - Recognize the importance of retirement planning and identify the three biggest pitfalls to good planning.

LG 2 - Establish your income needs in retirement, and estimate your retirement income.

LG 3 - Explain the public pension system in Canada.

LG 4 - Describe the different types of employer-sponsored pension plans.

LG 5 - Describe the various types of self-directed retirement plans.

LG 6 - Choose the right type of payout plan for your retirement.

Learning Goals

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Internet Links and On-Line Resources

• Life Expectancy Calculator at Dinkytown.• Canada Online Retirement Finances site includes articles and resources

on key topics affecting retirement plans.• Services Canada comprehensive retirement income calculator.• Social Development Canada website for more information concerning

the Canada Pension Plan.• See your Statement of Contributions to the Canada Pension Plan at

Social Development Website.• Retirement planning and pension decisions information on the Investor

Education Fund Website.• A good introduction to annuities from Hughes Trustco Group Ltd.• Loan calculator at Dinkytown to calculate the size of the payment you

will need to create a certain monthly annuity payment.

Web Links

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Key Chapter Terms and Definitions Contributory earnings Registered pension plan Noncontributory pension p

lan Contributory pension plan Vested rights Locking in Portability Defined contribution plan Defined benefit plan Deferred profit-sharing pla

n Earned income Pension adjustment Contribution room Annuity Accumulation period Distribution period

Registered annuity Term certain annuity Pure life annuity Life annuity guaranteed

term Joint life annuity Joint and last survivor

annuity

Terms

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DefinitionsContributory Earnings

The employment earnings of an individual for the purpose of calculating benefits under the Canada Pension Plan.

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DefinitionsRegistered pension plan

A pension plan that has been registered with the Canada Revenue Agency and the appropriate federal and provincial pension regulatory agencies.

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DefinitionsNon contributory pension plan

A pension plan in which the employer pays the total cost of the benefits.

Terms

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DefinitionsContributory pension plan

A pension plan in which the employee bears a portion of the cost of the benefits.

Terms

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DefinitionsVested rights

An employee’s non-forfeitable right to receive benefits under a pension plan.

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DefinitionsLocking in

The requirement under a pension plan that accumulated benefits for an individual must only be available as a pension.

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DefinitionsPortability

A provision of a pension plan that permits the transfer of benefits under the plan to be transferred to another pension plan.

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DefinitionsDefined contribution pension plan

A pension plan that specifies the amount of the contributions that both employer and employee must make; it makes no promises concerning the size of the benefits at retirement.

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DefinitionsDefined benefit pension plan

A pension plan in which the formula for computing benefits is stipulated in the plan provisions.

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DefinitionsDeferred profit-sharing plan

• A profit-sharing plan registered with CRA in which the employees of a firm participate in the company’s earnings on a tax-deferred basis.

Terms

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DefinitionsEarned income

• Income from employment, business and rent for an individual, the sum of which is used to calculate amounts that may be contributed to an RRSP.

• Does NOT include investment income – capital gains, dividends or interest.

Terms

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DefinitionsPension adjustment

• The amount contributed to a registered pension plan in a year by employee and employer.

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DefinitionsContribution room

• The term used to describe the allowable amount that an individual could have contributed to an RRSP in prior periods that remain unused and is carried forward from the preceding tax year.

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DefinitionsAnnuity

• An investment product that provides a series of payments or receipts on a periodic basis.

Terms

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DefinitionsAccumulation period

• The period during which premiums are paid for the purchase of an annuity.

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DefinitionsDistribution period

• The period during which annuity payments are made to an annuitant.

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DefinitionsRegistered annuity

• An annuity purchased with the proceeds from a registered retirement plan (RPP or RRSP)

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DefinitionsTerm certain annuity

• An annuity where payments are made for a fixed period of time that is independent of the age of the annuitant.

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DefinitionsPure life annuity contract

• An annuity payable for the life of the annuitant.

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DefinitionsLife annuity guaranteed term

• An annuity based on the age of the annuitant that will make payments for as long as the annuitant lives or for a guaranteed term, whichever is longer.

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DefinitionsJoint life annuity

• An annuity based on the age of two individuals that will make payments for as long as both of the individuals are alive.

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DefinitionsJoint and last survivor annuity

• An annuity based on the age of two individuals that will make payments for as long as one of the individuals is alive.

Terms

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THE END!