Retirement Savings Family Law Toronto

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Chris Coulter

Retirement Savings: Are You Going to Need to Win a Lottery?

Once upon a time, a million dollars was an amount that people would consider retiring on.

I recall back in the 70’s, when they introduced the first “million-dollar lottery”, people would buy their $10 ticket for a chance to win big. Families would circle around the television with their ticket and watch the live draw.

Today, a million dollars won’t even leave you mortgage-free if you buy a home in Toronto. So how exactly does one retire comfortably when winning a multimillion-dollar jackpot is extremely unlikely?  

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The number is going to be different for every individual, depending on numerous unique variables. However, one thing remains true for everybody; the sooner you start planning for retirement, the better off you’ll be.

Start Saving for Retirement Now

A lot of us see retirement planning as something we can address later. Your cashflow may be fine right now, but too many people find themselves in a real bind after they stop working.

Almost 50% of retirees have saved less than $250,000 towards their retirement. That sounds okay – but it’s going to be hard to live off of that if it has to last you 30+ years.

Let’s say you have $250,000 in a registered retirement fund (meaning taxes have been deferred until you access the money). If you needed to access these funds at age 65, and set up a lifetime annuity*, a $250,000 lifetime annuity would translate into an annual after-tax income of just over $13,000/year! 

Canadians know that they need to save more than $250,000 for retirement. The majority believe their retirement nest egg should be around $750,000. But is that enough?

If you take the same scenario, and put $750,000 registered funds into a lifetime annuity, you will net out a bit less than $40,000/year. $40,000/year, or less than $3,500/month, could work for you if you don’t have a mortgage, car payments or outstanding loans. And, that would be $40,000 in 2019 dollars. $40,000 in 2040 will likely buy you less than it will buy you today.

You’ve Got Some Help, Too

Old Age Security/Guaranteed Income Supplement

Don’t panic. Even if you haven’t saved a lot towards your retirement, you may be eligible for Old Age Security (OAS) payments. OAS is a payment that is issued to most individuals 65 years of age and older. The individual OAS amount is approximately $600 per month.

You are eligible to receive all or some of this amount if your retirement income is less than $125,000 per year. Anyone who has a before-tax income of $125,000 or more is not eligible to receive the OAS payments. This is payable until the individual’s death, or death of the spouse in the case of survivor benefits.

The Guaranteed Income Supplement (GIS) is paid in addition to the OAS for those 65 years or older who do not meet the minimum income threshold levels. An individual making less than $18,000 per year may qualify for the Supplement of an additional $900 per month in addition to the monthly OAS payment. Here is a list of all the GIS eligibility requirements.

The amount you receive is annually adjusted for inflation.

Canada Pension Plan (CPP)

Another important part of your retirement income may be your Canada Pension Plan payment. The amount of CPP monthly income will depend upon when you decide to start taking it as income. You are eligible to take CPP as early as 60, or you can defer it until as late as 70. If you decide to take CPP at age 65, the maximum amount for 2019 is approximately $1,150 per month. The amount will be less if you take it before the age of 65, and more if you take it after the age of 65. The amount is adjusted by 8.4% per year if you take it before or after the age of 65.

Unlike OAS, CPP is based upon how much you’ve made and contributed over time. This is the amount that has been deducted from your paycheque since you have been working.

If you have been living in Canada, working consistently for your adult life, and made $55,000 per year or more, you will likely receive the maximum amount.

If you’ve recently moved to Canada, had a significant break in your employment (thus not contributing to CPP for a period of time), or made less than $55,000 per year, you will be eligible for less than the maximum amount.

If you want to see how much you’ve contributed, or what you’re currently on track to collect in the way CPP during retirement, you should contact the Canada Pension Plan office.

Similar to OAS, CPP is adjusted for inflation.

Here is a more thorough look at how your CPP can contribute towards your retirement savings.

So, What’s Your Retirement Number?

While factoring in all your sources of income for retirement is important, the one variable that we are not in control of is how long we should plan for. We can’t know how long we will live. 

The strategy here is to plan for a long life.

The other variables that are going to impact your number are:

  • When you start saving for retirement
  • What your rate of return is
  • Your actual retirement age 

We’ll save these variables for a later post.

Conclusion

We’ve all fantasized about winning the lottery, but sadly, many people’s retirement plan is built around winning. That’s a risk that is not worth taking.

Your retirement doesn’t need to be predicated on luck. With a detailed plan, a confident financial advisor and the motivation to start saving now, you can build a retirement that you’ll really enjoy.

*A Lifetime Annuity is a guaranteed contract through an insurance company that agrees to pay you a certain amount of income for life.

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