If you have been reading the news lately, you may have heard that seniors are in for a rough time in retirement. According to the media, employer-sponsored pension plans are crumbling and older Canadians won’t be able to count on receiving much, if anything, from the underfunded Canada Pension Plan (even though they have been making mandatory contributions during their working life). Similar stories point out that Canadians have failed to adequately save for retirement, and the majority of older people will be faced with living in poverty in what should be their Golden Years. Don’t believe everything you hear and read; senior couples are currently the wealthiest family category in the nation and that isn’t likely to change soon.
Workplace Pensions are Only One Part of a Retirement Income Plan
The majority of Canadian workers do not have an employer-sponsored pension to help them save for retirement. (Approximately one-third of employees fall into that category.) They do have other options to help them fund their retirement, though. Rather than looking to a company pension to provide cash flow in later years, any or all the following can be used to help make ends meet:
- Canada Pension Plan (CPP) retirement pension
- Old Age Security pension
- RRSPs (Registered Retirement Savings Plan)/RRIFs (Registered Retirement Income Fund)
- Guaranteed Income Supplement (for low income seniors)
- Non-registered investments
- Home equity
- Investment properties
- An inheritance
- Financial support from children
How Much Do You Need to Finance Your Retirement?
When you think about how much income you will need in retirement, keep in mind that you don’t need to replace the full amount you were making when you were working to live comfortably. If your home is fully paid for by the time you retire and your children are out of school and no longer relying on you for support, you may be able to live quite well on 40 percent of your previous income.
Some of your expenses may be lower once you stop working, too. Your daily commute, buying coffee and lunches out, and maintaining a professional wardrobe all add up. The amount you pay in taxes will go down as your income level decreases, and you will no longer be putting money aside for retirement. All of these factors will free up some cash, which can help to make this stage of life more affordable.
Start Planning Now for a Happy Retirement
No matter how old you are now, you can still make some changes which will help you prepare for retirement. If you have debt, you can avoid a “retirement crisis” by taking a good look at what you owe and taking steps to pay it off before you stop working.
There is no set age at which you have to leave the workforce, and you may decide to continue working on a full or part-time basis to supplement your other sources of income for financial reasons or simply because you want to stay active and involved in the workplace.