Worried about retirement? Specifically, about the cost of retirement and whether you will have enough money? If so, you’re not alone. According to recent surveys, more than half of Canadians are concerned about their retirement savings and the pandemic has only made this situation worse.1
Worrying Too Much?
Some studies have shown that perhaps we worry too much about our funds in retirement. One expert estimated that a couple could live on around $44,000 per year.2 Government safety nets could supplement this amount if personal assets were exhausted. Many of us would dispute this assessment, as most would like retirement to go beyond subsistence! However, while the pandemic has created income issues for some, it has shown others how much discretionary spending could be reduced — though few would want retirement to mirror pandemic life.
If you are fortunate enough to have a defined benefit pension plan at work, you will have at least some idea of your retirement income. However, the world continues to change and defined benefit pension plans have become increasingly rare.
Registered Retirement Savings Plans (RRSPs) are the other major component of retirement savings for many Canadians. They are often converted to a Registered Retirement Income Fund (RRIF) to provide taxable income. How much can a RRIF provide? For those who are regimented in contributing, the RRIF may play a substantial role. The table (right) shows the payments that would be received based on the current minimum withdrawal requirements for a plan value of $300,000 at age 70. Assuming a five percent annual return on investments, changes in the RRIF value are also shown. For those worried about outliving assets, the numbers provide some comfort. At age 90, 60 percent of the original asset value is still available, and this doesn’t consider other sources of retirement income.
Need More Income?
The RRIF is flexible in the amount of income you can draw, so some may withdraw more than the minimum when needed. The Tax-Free Savings Plan has also become a significant investment vehicle that can help to fund retirement. And in many cases, people do not stop working at age 65. While they may leave lifelong jobs, they may end up doing something else that is productive (and perhaps even profitable!).
We Are Here to Assist
One of our roles is to help clients prepare for a comfortable retirement. We can assist with worksheets and tools to project your requirements as you plan for the future. Continue to look forward with confidence!
For those concerned about longevity risk, the Canada Pension Plan (CPP) has the potential for greater payouts if payments are deferred to the age of 70. The current maximum annual benefit is $14,445 for anindividual starting paymentat age 65, but this rises by 42 percent at age 70. Yet, fewer than one percent of retirees delay CPP until age 70, despite studies that show it to be one of the more financially prudent decisions should you live beyond the average life expectancy of 82 years old.
|Age||Income||RRIF Value (Year End)|
Based on $300,000 RRIF value at age 69, at five percent annual return, with minimum withdrawal factors. Illustrative only.