If you are a Canadian citizen who is retired or planning to retire soon, you probably have some questions when it comes to your income prospects. And while there isn’t a one-size-fits-all number to save towards when it comes to income in retirement, knowing more about your potential sources of income during this phase of life could help you plan out your later years with assurance and security. Of course, there will be scenarios or eventualities you may not be able to foresee, but having even a modest amount of control and planning can set you up for success as a retiree. Whether you’re planning to retire soon or are currently retired, learning about the average Canadian income and related expenses can help you create a better, more comprehensive plan for your golden years.
The three pillars of retirement income
For starters, it’s helpful to know the main sources of Canadian retirees’ incomes. According to the Government of Canada, there are three “pillars” of retiree income in the country:
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
Old Age Security (OAS)
Employer-sponsored pension plans and personal savings and investments
According to the site, the CPP or QPP, “provides income replacement for those who have worked or been self-employed in Canada”. The amount of income you get every month depends on your earnings, contributions to the plan, and your age when you decide to start receiving your retirement benefits. You can elect to draw down your pension payments between 60 and 70 years of age. Waiting later to start getting your benefits means you’ll get a higher monthly payment. If you get your benefits earlier, then your monthly payment will be lower.
OAS pension benefit is for Canadians aged 65 or older. You are eligible for these benefits if you’re still working or have never worked. Also, you don’t need to contribute to receive benefits from this category. As long as you’ve lived in Canada for more than 10 years (after the age of 18), you’re eligible to receive the OAS benefit. You’re eligible for a full OAS pension if you’ve lived in Canada for 40 years, after the age of 18. It’s worth keeping in mind that benefits could be reduced through a “clawback”, if your annual income exceeds a certain threshold.
Other possible sources of income include the Guaranteed Income Supplement (GIS), which is a monthly non-taxable benefit to Old Age Security (OAS) pension for low-income Canadians. There is also the Allowance benefit for spouses or common-law partners of a GIS recipient.
You may also be able to benefit from employer-sponsored retirement and pension plans like a Group Registered Retirement Savings Plan (group RRSP) or a Registered Pension Plan (RPP). Personal retirement income could come from RRSPs and TFSAs, both of which could be composed of different types of savings or investing products. You could also earn income from stocks, bonds, personal savings accounts, and other non-registered sources. Needless to say, there are a lot of options available.
How to figure out retirement spending
Spending in retirement will probably look a little different than spending while you’re working and saving. You can create your own retirement budget by looking at your current spending along with spending averages for other Canadian retirees. If you aren’t yet retired, use your current spending as a baseline for your budget.
Common retirement expenses could include increased insurance premiums, healthcare costs, household help, and travel/leisure activities. On the other hand, you may not be paying as much money for expenses related to housing (your mortgage might be paid off) or raising children. So, in some areas, you will see expenses increase, while in others, you may see your expenses decrease.
If you aren’t retired yet but want to know what your budget might look like as a retiree, it might be helpful to speak with friends who are retired to see how they are spending money. You might be surprised how much you could spend on your grandchildren, traveling, hobbies, or home improvement projects as your time gets freed up. Finally, if you are concerned about having enough money in retirement, there are still things you can do to get on track for your retirement planning. The best place to start is figuring out how much you’ll need to retire and what your expected sources of income might be. Based on any potential gaps you identify, you can work towards putting together a strong retirement plan. That could involve planning around:
Maximizing your government benefits: Consider the optimal age to start receiving payments, and optimizing for potential clawbacks
Reassessing your investment strategy: Ensure you are appropriately diversified and taking the right amount of risk
Plan for tax-efficient withdrawal strategies: Understand the tax implications of different income sources, plan the order of withdrawals from various accounts, explore different strategies such as income splitting to reduce your tax and help get more from your dollars
Seek professional advice: Consider consulting with a fiduciary financial advisor who has expertise in retirement planning
There are many roads to one place, but the key is starting somewhere. Do as much research as you can, then take action. Don’t let “analysis paralysis” make you put off important decisions about your retirement planning and savings. When it comes to investing, time is money. The clock is ticking, so it’s best to get started as soon as possible.
