Retirement planning is about managing your money so you can make the most of your retirement years. Your retirement plan should balance your needs, wants and the reality of your finances.
On this page you’ll find
Why have a retirement plan?
A retirement plan is like a map. It can help you stay on track financially. And it can give you peace of mind about your future direction. Your plan starts with thinking about:
- What age do you want to retire?
- When can you start saving for retirement?
- What sources of income will you have in retirement?
It can be helpful to speak with an expert about retirement. A registered financial advisor can work with you to develop your retirement plan. An advisor can help you to:
- Set goals.
- Determine how much money you need to save to live comfortably.
- Choose investments based on your goals, time horizon and your risk tolerance.
An advisor can also help you consider the answers to more complicated questions, including:
- How can you ensure you have enough retirement income for the lifestyle you want? For example, how much money would you need if you intend to travel more during your retirement?
- How can you prepare for future health challenges that may impact your retirement income?
- How can you cover potentially large expenses such as paying for a wedding or helping with a down payment on a house for your children?
Regular discussions with your financial advisor will help you adapt your retirement investment plans. Find out more about working with a financial advisor.
Where to begin?
Retirement planning starts with developing a savings habit. Putting money aside each month will help you prepare for emergencies, stay out of debt, and reach your financial retirement goals. It’s helpful to understand saving and investing. Through compounding you can reinvest the earnings from your investments to grow your money faster. See how your savings can add up with our compound interest calculator.
If you’re concerned about your retirement, you’re not alone. Many Canadians worry about it. An OSC survey, Profiles of Retirement, found the most common financial concerns among Canadian retirees and pre-retirees were:
- Sustained high inflation rates.
- Running out of money during retirement.
- Increased housing and rental costs.
- Unexpected health-care costs.
The survey also found that working Canadians over age 50 may not retire as comfortably as those who are already retired. And they are also less likely to have a financial plan. Compared to retirees, pre-retirees have less savings and more debt.
Thinking about retiring? Try our retirement ready quiz.
How much do you need to save for retirement?
Determining how much you need to save for retirement might be the most important step in your retirement plan. This amount might change over time. Your estimate for how much you need to save for retirement depends on your: age, lifestyle, pension income and government benefits eligibility.
- Age – The younger you are when you start investing, the longer your time horizon. Your time horizon is the amount of time you have before you want to use the money in your investments. Find out more about your time horizon.
- Lifestyle – The amount you’ll need to save depends on the life you want to lead when you retire. Do you plan to stay home (age in place) and will updates need to be made to your home? You may want to travel more during your retirement and take up new hobbies. And you may want to keep money set aside for a planned inheritance for your children or grandchildren. You may also want to factor in a financial cushion to maintain your lifestyle should an unexpected expense arise.
- Pension income – You may also have income from a pension plan at your place of employment. This may be in the form of a defined benefit plan, a defined contribution plan, or another type of pension or savings plan. The amount of income you receive will depend on how long you were part of the plan, and how the funds were invested. Learn more about pension and savings plans.
- Eligibility for federal government benefits – When you retire, you’ll likely be entitled to at least some federal government retirement benefits. This may reduce the amount of personal savings you need to build for retirement. The federal government offers three retirement benefits based on your income and/or the amount you contribute during your working years:
- Canada Pension Plan/Quebec Pension Plan (CPP) – You can receive monthly payments starting as early as your 60th birthday. But your monthly payment is smaller if you start receiving it before age 65. What you get depends on what you paid into the plan while you were working. Learn more about CPP.
- Old Age Security (OAS) – You must be 65 or older to receive payments. You don’t have to live in Canada, but you have to be a Canadian citizen. What you get depends on your other income and how long you’ve lived in Canada. Learn more about OAS.
- Guaranteed Income Supplement (GIS) – For lower-income Canadians 65 and older. What you get depends on your income (and your spouse’s if you have one). It pays out a maximum of $15,000 (couples might get more). Learn more about the GIS.
You don’t get these benefits automatically – you must apply for them. You can use this calculator from Service Canada to estimate your income in retirement.
If you’re unsure how your cash flow in retirement may change compared to your working years, we have tools that can help:
- Retirement Budget Calculator – To compare your income and expenses in retirement.
- Retirement Cash Flow Calculator – To help you estimate how much money you’ll receive from your savings, government benefits and any pensions. You can also work with a financial advisor to figure out this estimate.
Where can you save money for retirement?
Canadians have a few different options for retirement savings. There are three commonly used savings plans for retirement funds:
1. Registered Retirement Savings Plan (RRSP)
This registered account is typically used for investing but it can also hold savings deposits. An RRSP lets you reduce your taxable income in your earning years. You receive a tax deduction based on the amount you put into your RRSP. RRSP withdrawals are considered taxable income when you retire. Learn more about RRSPs.
2. Tax–Free Savings Account (TFSA)
TFSAs can hold savings or most kinds of investments. All Canadians have the same annual TFSA contribution limit, regardless of income level. Canadians with lower incomes may find TFSAs more suitable for retirement savings than RRSPs. Withdrawals are not considered taxable income. Learn more about TFSAs.
3. Workplace pension and savings plans
Your employer may offer pension plan contributions as part of your compensation package. Pension plans, group RRSPs and other savings plans can be a convenient way to save because your contributions come off your pay cheque. And if your employer matches your contributions, your savings power is doubled. Learn more about pension plans.
Once you know where you want to put your retirement saving and investing efforts, you can start making regular contributions to your account(s).
Knowing how much income you can expect from your Registered Retirement Savings Plan (RRSP) can help you plan for your retirement. Try the RRSP savings calculator.
How can you keep your retirement nest egg safe?
It’s heartbreaking when someone is robbed of their retirement savings by a scammer. Anyone can be a victim of a scam, at any age. Tools to keep your money safe:
- Try our scam spotter to look for the warning signs of fraud.
- Use the checklist to protect your financial information.
- Learn to recognize scams.
Changes in your health can occur suddenly and at any time. To protect your investments, consider:
- Telling your financial advisor the name of a Trusted Contact Person – Someone your advisor can talk to if they are unable to contact you or have concerns about you.
- Appointing a power of attorney – A legal document that names someone to make financial and other decisions for you when you can’t make them yourself.
- Updating your will – A valid, up to date will helps ensure your estate is distributed as you intend it.
Are you concerned about the financial well-being of a senior close to you? Learn the signs of elder financial abuse.
How can you prepare for unexpected costs in retirement?
Emergency expenses and unexpected costs can happen at any age. Older Canadians are often caught off guard by unexpected events that can occur in retirement. Your retirement plan could be impacted by:
- Supporting a family member.
- Covering health care expenses.
- Receiving lower investment returns.
Profiles of retirement found that both retirees and pre-retirees may not be prepared for financial emergencies. The research also found that 61% of pre-retirees who are currently saving for retirement had not considered unexpected costs related to health or long-term care in their planning.
While you can’t predict every expense you’ll encounter, it’s wise to look ahead and plan for the unexpected. Find out more about having an emergency fund and planning for long-term care.
What are other ways to prepare financially for retirement?
Transitioning from working to retiring involves many decisions. There are a few things you can do ahead of time, including:
1. Pay off your debts
Pay off your debts as soon as you can, ideally before you retire. Any interest you’re accumulating on your debts will cut into the income you will rely on in your retirement. Learn more about managing debt.
2. Review your insurance needs
Your insurance needs will likely change as you get older. If you have fewer debts and dependents, you may not need as much life insurance coverage. However, you’ll likely still want coverage for emergencies like damage to your home or car. If you were covered previously through a workplace insurance plan, it’s a good idea to investigate the cost of coverage on your own. You may want to consider critical illness insurance or long-term care insurance. And if you’re planning to spend winters in another country or to travel more, it may be wise to get travel medical insurance.
The Profiles of Retirement survey found that almost half of retirees had an unexpected event occur that significantly impacted their finances — the most common event being a long-term disability. And about half of pre-retirees had an event occur leading up to retirement that impacted their ability to save.
3. Regularly review your budget
Making sure you’re on track for retirement means keeping tabs on your current spending and saving. If your monthly income isn’t leaving you with enough to set aside, consider finding ways to save more, cut spending or explore ways to boost your income in retirement.
4. Apply for government benefits
Don’t wait until the last minute to apply for government benefits — it may mean a delay in getting your payments. You need to apply for CPP nine months before you retire in order to receive your payments in time. Also make sure you are up to date on your tax filing.
5. Prepare to convert your savings to income
Research your income options and set up a plan so you have an income from the first day you retire. Income options include RRIFs, annuities and unsheltered savings.
How do you know if your retirement years will be alright?
Many Canadians worry their retirement income may not allow them to comfortably maintain their standard of living. But with planning and good financial advice you may find you can cover your expenses and live well during your retirement years.
The Profiles of Retirement survey pointed to some good news. Most Canadian retirees are satisfied with retirement.
The survey found:
- 77% of retirees are enjoying retirement.
- 70% of retirees say their standard of living is the same as or better than it was before they retired.
Summary
Retirement is a big step in your life. Get yourself ready and consider:
- Creating a retirement plan.
- Thinking about when you want to retire, your lifestyle needs, and your sources of income in retirement.
- Talking to a registered financial advisor.
- Setting aside money into a TFSA, RRSP or a workplace pension — or all three.
- Reviewing your insurance needs, your budget, and your expected income in retirement.
- Preparing for unexpected costs.
- Paying off debts.
