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Smith: Retirement plan options

Retirement can be more of a transition for many people today. Longer life expectancies may be part of the consideration to stay in the work force.

Life expectancies are increasing so we will have longer retirements. Other people choose to retire as soon as they can. The average person will retire today at 61 years of age and live almost three decades in retirement. How much is needed in retirement? The income stream required for most people is based on lifestyle choices and retirement income.

If you are five years away from retirement, do an estimate of your current income and see if you can live the retirement lifestyle of your choice.

Prepare a budget. Take a realistic look at how much you spend on the necessities of life. Also, create a wishlist of expenditures above and beyond the necessities of life. Travel and hobbies may be a big part of retirement spending.

There are three main sources of retirement income—a combination of government programs, employer-sponsored plans and your own personal RRSPs and investments.

The Old Age Security is available to most Canadians age 65 or older. The maximum amount is $533.70. There are additional benefits available for seniors in need who are eligible. The Guaranteed Income Supplement is available to those who have little or no other retirement income. The allowance is available to people age 60 to 64 whose spouse/common law partner receives the Old Age Security Program and the GIS.

There is also an allowance for the survivor, for people age 60 to 64 who have little or no income and whose spouse is deceased. The Canada Pension Plan is an earnings related program tied to the contributions you made during your working years and is also based on your age at the time you apply for benefits.

If you have ceased employment at age 60, you can apply for benefits. The maximum allowed at age 65 is $960 and the benefits are revised quarterly to reflect the cost of living.

There are many types of employer sponsored plans, the income stream from company pensions depend on the type of plan, how long you’re a member, your own contribution level, the company’s contribution and the choice of investments.

The third source of retirement income comes from personal savings. RRSPs, non-registered savings and TFSAs to provide an income stream in retirement. Receiving income in retirement requires tax planning. You may also need to consider an estate planning strategy and draw extra money during your retirement to reduce tax payable at death.

Doreen Smith is a Certified Financial Planner with Capri Wealth Management Inc., dsmith@capri.ca.

 

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