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FINANCIAL FITNESS Planning for Your Retirement · PDF file 1 / Planning for Your Retirement...

Date post:12-Oct-2020
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  • 1 / Planning for Your Retirement

    How to Begin Planning There are three basic areas to consider in planning for retirement: • Your finances, including your needs, and

    resources such as savings, investments, and pension income;

    • Your proposed retirement age; and • Your personal goals and planning activities

    for retirement.

    Personal values affect these considerations, so planning should be a family matter.

    To help you through the planning process, your credit union offers this booklet. Whether you’re fast approaching retirement, or whether you’re starting now on a long-term plan for your future, you’ll find useful information and advice here.

    Use of the Term “Spouse” Throughout this booklet, the term “spouse” includes other individuals who have been given similar rights under the applicable legislation.


    Most of us can look forward to spending at least one-quarter of our lives in retirement, thanks to improved standards of living, advances in medical care, and trends toward early retirement – either voluntary or forced. Making the most of those years calls for thoughtful planning well ahead of the retirement day. Financial matters, as well as decisions regarding lifestyle, must be considered to ensure that you make a successful rather than stressful transition to retirement.

    When to Start Planning It’s never too early to start planning for your retire- ment. The sooner you start, the more choices are open to you and the more flexibility you have in making adjustments to reach your eventual goal. Ideally, you should start planning your retirement finances in your 20s or early 30s and be fully involved in carrying out a well thought-out plan by your early 40s.

    Planning for your retirement years is as important as planning your finances. Developing leisure interests and activities early in life will lay a good foundation for meaningful, stimulating retirement years.

    Planning for Your Retirement

    F I N A N C I A L F I T N E S S


  • 2 / Planning for Your Retirement

    Determining Your Financial Needs

    Considerable energy and effort goes into developing a social “safety net” for retired people in Canada. Governments provide publicly funded pensions, set standards for private pension plans, and offer tax incentives for pension saving. Employers design and fund employee pension plans. A whole financial planning industry is available to provide advice and services.

    Nevertheless, it’s up to you to provide for your own financial security by setting your long- term retirement goals and developing a plan for achieving them.

    The first step in any plan is determining where you are and where you want to be. This means analyzing your present financial position and projecting it to the time in the future when you want to retire.

    As part of your plan, you must determine your needs during retirement, considering such things as your spending habits, whether you’ll own or rent your home, and how much of a reserve you’ll want for unexpected expenses.

    Retirement Income

    Sources of Retirement Income Estimated Monthly Retirement Income

    Your employer’s pension payment $

    Your Canada Pension Plan $

    Your Old Age Security $

    Your Guaranteed Income Supplement $

    Your RRSP income $

    Profit-sharing fund payout $

    Any earned income in retirement, salary expected


    Rental income (net) $

    Any other fees, payments for services $

    Disability and/or endowment/ insurance payments


    Business or real estate income $

    Savings account interest $

    Canada Savings Bond interest $

    Term deposits, guaranteed investment certificate interest


    Tax-Free Savings Accounts (TFSA)* $

    Income from stocks, bonds, mutual funds, etc.


    Investment income from any expected inheritance


    Other net worth property, investments, which you expect to create income


    Other income sources: alimony, social welfare, disability insurance, employment insurance


    Spousal Income (if applicable):

    Employer’s pension payment $

    Canada Pension Plan $

    Old Age Security $

    Guaranteed Income Supplement $

    RRSP income $

    Total Expected Monthly Income $

    * The TFSA is another tax sheltered product for investment earnings and gains. Unlike RRSPs, withdrawals of contributions and income/gains are not taxable. TFSAs have been available since 2009. Contact your Credit Union for additional information on this registered product.

  • 3 / Planning for Your Retirement

    Retirement Income Expenses

    Estimate Your Monthly Cost of Living

    Need Now Need in Retirement

    $ Monthly $ Annually $ Monthly $ Annually

    Budget Need: (excluding savings and income taxes)

    Food: (including meals out)

    Housing: (utilities, rent/ mortgage, furnishings, property taxes, maintenance, homeowner’s insurance)

    Transportation: (gasoline, auto insurance, licence, maintenance, public transportation)

    Clothing & Personal Care: (dry cleaning, cosmetics, toiletries)

    Medical Care: (drugs, dental, health insurance, other medical expenses)

    Entertainment: (recreation, books, magazines)

    Other Items: (gifts, donations, life insurance)

    Total Expenses

    Strategies for Saving

    Without a specific savings strategy, most people find it difficult to save. The trick is to build saving into your budget, rather than leaving it as an afterthought. If the cash has a way of disappearing before it reaches your savings account, try a payroll savings plan so that the money can’t take a detour. Make sure you’re realistic about your savings budget – if you aim too high, you’ll soon find your good intentions are unworkable.

    You can earn the best return on your money by following a few basic techniques: • Channel all idle money into a savings account

    that will earn interest, even if only for a few days or weeks. For example, if you make monthly mortgage and car loan payments, keep the funds in a daily interest savings account and transfer them to chequing just before your payments are due (check first to make sure transfer costs don’t apply). Or use a chequing savings account.

    • Transfer savings that won’t immediately be needed from your regular savings account into higher- paying term deposits or a high interest savings account. To cover yourself in emergencies, stagger the maturity dates of the term deposits so that one is always coming due shortly.

    The cornerstone of many retirement savings strategies is to put your savings into a registered retirement savings plan (RRSP).

    RRSPs are designed specifically to help you save for your retirement. Qualifying contributions made to an RRSP can be claimed as a tax deduction. No tax is paid on the interest and other income earned from these contributions until the funds are withdrawn. At retirement, the funds held in your RRSP can be converted to your own personal pension. This pension can take the form of a Registered Retirement Income Fund, Life Annuity or Term Certain Annuity. For further information about RRSPs, refer to the credit union booklet: Understanding RRSPs.

  • 4 / Planning for Your Retirement

    Another helpful savings vehicle is the Tax-Free Savings Account (TFSA). This registered product has been available since 2009. Unlike RRSPs, the contribution limit is not tied to your income and the contributions are not tax deductible. Interest and other income earned on the contributions accumulate tax-sheltered. A withdrawal of contributions and/or income is not taxable. For further information, contact your credit union or refer to the credit union leaflet: Understanding TFSAs.

    Savings ultimately are not only a source of financial security, they also earn income for you. The following chart demonstrates the amount of savings that you need to accumulate to produce a specific monthly income at various rates of interest. For example, to earn $200 per month when interest rates are 4% requires $60,000 of savings.

    Annual Interest Rate

    Monthly Income Earned

    % $100 $200 $350 $500 $1000

    Required Savings and Investments (In Thousands)

    3.00% 40.00 80.00 140.00 200.00 400.00

    3.25% 36.92 73.85 129.23 184.62 369.23

    3.50% 34.29 68.57 120.00 171.43 342.86

    3.75% 32.00 64.00 112.00 160.00 320.00

    4.00% 30.00 60.00 105.00 150.00 300.00

    4.25% 28.24 56.47 98.82 141.18 282.35

    4.50% 26.67 53.33 93.33 133.33 266.67

    4.75% 25.26 50.53 88.42 126.32 252.63

    5.00% 24.00 48.00 84.00 120.00 240.00

    5.25% 22.86 45.71 80.00 114.29 228.57

    5.50% 21.82 43.64 76.36 109.09 218.18

    5.75% 20.87 41.74 73.04 104.35 208.70

    6.00% 20.00 40.00 70.00 100.00 200.00

    6.25% 19.20 38.40 67.20 96.00 192.00

    6.50% 18.46 36.92 64.62 92.31 184.62

    6.75% 17.78 35.56 62.22 88.89 177.78

    7.00% 17.14 34.29 60.00 85.71 171.43

    7.25% 16.55 33.10 57.93 82.76 165.52

    7.50% 16.00 32.00 56.00 80.00 160.00

    7.75% 15.48 30.97 54.19 77.42 154.84

    8.00% 15.00 30.00 52.50 75.00 150.00

    8.25% 14.55 29.09 50.91 72.73 145.45

    8.50% 14.12 28.24 49.41 70.59 141.18

    8.75% 13.71 27.43 48.00 68.57 137.14

    9.00% 1

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