"I want to feel good about my retirement, but... how will I be able to afford it?"

Planning your retirement carefully can help to answer the crucial question of whether or not you can retire when you want to.

Define the Need
The answers to some key questions will help to establish your needs in retirement. When do you want to stop working? Where will you live? What will you do with your time? Will you be responsible for other family members? How much will all this cost, and for how long? How much will inflation increase these costs? And finally, what sources of income will you have to cover them?

Employment Pensions
Defined Benefit pension plans guarantee an income in retirement based on years of service with the employer and average earnings. The employer must ensure that pensioners receive the income defined in the plan, regardless of investment performance. In Defined Contribution plans, contributions are known but income in retirement is not guaranteed. Because it can account for a large portion of your income, your workplace pension should be considered very carefully.

Canada Pension Plan (CPP) and Old Age Security (OAS)
At age 65, the current maximum monthly CPP retirement benefit is $960, based on contributions from earned income. The benefit can start as early as age 60. The starting benefit is reduced prior to age 65 and increased between age 65 and 70. Contact Service Canada (servicecanada.gc.ca) for an estimate of your CPP benefits.

The OAS retirement pension starts no earlier than age 65. The current maximum monthly benefit is $533.70, based on your years of residence in Canada. If your taxable income from all other sources is more than $67,688, your OAS pension will be reduced by 15% of the excess.

Personal Savings
Your personal savings will need to cover any shortfall between pension income and your overall income objective. You can estimate how much income your savings can provide by assuming a reasonable average rate of return based on your investments and risk tolerance, and by assessing when withdrawals from savings will be needed and how they will be taxed. This should be part of your evaluation of different investment options for retirement.

Withdrawals from Registered Retirement Savings Plans (RRSPs) are fully taxable, and are subject to minimum withdrawal requirements starting no later than age 71. Withdrawals from Tax Free Savings Accounts (TFSAs) are not taxable and are not subject to limits on amounts or timing. Savings held outside these plans may be taxed to varying degrees as they grow or when they are withdrawn, depending on how they are allocated.

Putting It All Together

If your pensions and savings are expected to provide enough income to meet your objective throughout retirement, then your retirement goals may well be affordable. A Certified Financial Planner can help you through the process and ensure that your information and assumptions are reasonable.