The Changing Face of Retirement in Canada
As the summer comes to an end, and vacations are over, one can start to imagine a time when work comes to an end, and enjoying your ‘retirement’. The question becomes, as we get closer to that time, “When can I retire?” That all depends on a few key factors and can be estimated and planned based on income, lifestyle, health, debt, savings, family obligations and other variables, to decide what will be enough to carry us through the golden years.
Many have a rough idea of how much income they feel they will need leave full time work and transition to a lesser role or retire completely, yet have not set aside the time to fully evaluate their income needs in retirement. Choices that may not seem to be a priority, such as how many times a month you want to golf, or what vacations will cost over they years, may in fact dictate when you decide to finally ‘exit’ the work world.
Calculating Your Total Income Needs
A common way to calculate total income needs at retirement is to multiply you pre-retirement ( after tax) income by 70%. This method can give you a ballpark estimate, but does not account for lifestyle choices.
- Golfing 12 times a year may cost $600.
- If golfing three times a week in retirement, from June to October, it may cost upwards of $3,000. Which golfer do you want to be?
What will your retirement look like?
The Changing Face of Retirement
The definition of retirement has evolved. Does any of this apply to your situation?
- Fewer Canadians today are retiring at 65; some retire earlier while others continue to work beyond that age to 67 or later
- The number of years spent in retirement is growing
- The average life expectancy of someone who reaches retirement today (age 65) is 81 for men and 86 for women
Source: Statistics Canada 2003
Determine potential sources of Retirement Income
Canadians have a number of income options available at retirement:
- Government Sponsored
- Income from Employers
- Personal Savings
Each income option has pros and cons, which need to be considered for every individual situation, and which balance works best to minimize taxation for your after retirement
Using Life Insurance
Under current Canadian income tax legislation, cash value growth in a life insurance policy is exempt from accrual taxation, provided certain conditions are met
The cash value of the life insurance policy can be accessed later to provide added income at retirement. Depending on how the cash value is accessed, this income may incur tax.
Term insurance cannot be used to access cash value.
Sources of Retirement Income
- Registered Retirement Savings Plans (RRSPs)+
- Registered Retirement Income Funds (RRIFs)+
- Life Income Funds (LIFs)+
- Locked-in Retirement Income Funds (LRIF)+
- Company pensions
- Old Age Security (OAS)
- Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
- Non-registered accounts
- Sale of a business
Accessing Cash Value from Life Insurance
The cash value can be accessed in the following ways:
- As a loan with interest
- As a collateral loan
- Cash surrender partial or all of the policy
Develop your ‘Exit Strategy’
Work with your financial security advisor to develop a realistic strategy that works for you. Putting your plan into motion and making necessary adjustments along the way will allow you to reach your retirement goals to your satisfaction.
As with any plan, it’s a good idea to take it out and dust it off once in awhile, especially if life has changed or will change with respect to marital status, job security, health issues, or lifestyle needs. Suddenly finding yourself single, widowed, or downsized can throw a wrench into your plan. Working with a Certified Financial Planner will assist with the transition from a ‘savings’ to an ‘income’ plan, as you edge closer to retirement.
FOLLOW OUR BLOG: September: What do I do with my Pension?
Discuss your pension options. Do you convert your pension? What benefit is there to conversion? What reasons would you have not to commute your pension? What happens if the company you work for is closed, sold or restructured? Follow our Blog during the month of September, and talk to us to plan your ‘Exit Strategy’.
Quadrus Investment Services Ltd. and design, Quadrus Group of Funds and Fusion are trade-marks of Quadrus Investment Services Ltd. used with permission.
Ron King, Investment Representative, Quadrus Investment Services Ltd. Insurance products, including segregated fund policies are offered through Specialty Wealth & Financial Inc., and Ron King offers mutual funds through Quadrus Investment Services Ltd.
This newsletter contains general information only and is intended for informational and educational purposes provided to email newsletter clients of Ron King and Specialty Wealth & Financial. Some of the information and opinions contained in this newsletter are reprinted with permission from sources quoted. While information contained in this newsletter is believed to be reliable and accurate at the time of printing, Specialty Wealth & Financial does not guarantee, represent or warrant that the information contained in this newsletter is accurate, complete, reliable, verified or error-free. This news-letter should not be taken or relied upon as providing legal, accounting or tax advice. You should obtain your own personal and independent professional advice, from your lawyer and/or accountant, to take into account your particular circumstances Copyright 2014. All rights reserved.