Hand in Hand

In the last month I’ve had conversations with people, clients and non clients alike, and felt prompted to share what people can expect during retirement. When I’m planning with a client, retirement is always the biggest topic of conversation.

Trying to quantify a monetary goal to save towards is difficult when you consider factors such as the age you want to retire, the type of lifestyle you want, how much you need to sustain that lifestyle, how long do you expect to live (no one wants to outlive their money), how will inflation affect their savings… Amongst all this chaos, there are things you can count on to help take the load off. The Canadian Government have a number of retirement programs to ensure that people don’t live in destitution after they leave the workforce.

The Canadian Pension Plan

The most recognizable retirement program is the CPP (Canadian Pension Plan). It builds up a chunk of money by taking a small portion of your paycheque. The amount you receive is based on a number of factors, however in most circumstances the maximum benefit is $986.67/month which adjusts based on how much income you’ve made.

How to Calculate Your Benefits

In order to receive the full pension you must have been working full time in Canada for 40 years. If you’ve worked for 20 years, you get half of that. If you’ve worked 10 or 30 years, it adjusts accordingly.

Now I hear what you’re asking: “Aaron, I’m so ridiculously wealthy that I want to retire early. Can I still get my CPP?” The answer is a definite yes. You can receive your CPP as early as 60 and if you’re a workaholic or you don’t feel like you saved enough for retirement, you can contribute to and receive as late as age 70.

Can You Afford to Not Work Longer?

A major contributing factor to remember is that retiring early or later will trigger either a penalty or a bonus. Every month you retire before 65, you’re dinged 0.5% of your pension. So if you retired at 64, you’d receive 6% less. If you retired at 60, you’d receive 30% less.

Conversely if you retired later, you’d get the same treatment, but in reverse, except you’d get a bonus of 0.7%. If you retired at 70, you’d receive 42% on top of your pension. This is the governments way of encouraging people to work longer.

CPP Not Going to Cut It? Fear Not!

If you haven’t saved enough for your retirement, our government has a safety net in place to further assist people once they retired after the age of 65. OAS (old age security) is not based on how long you’ve worked in Canada but only how long you’ve lived here.

Every 10 years you’ve lived in Canada after the age of 18, you’ll receive 25% of the full amount which is approximately $540.12. In order to be eligible you need to have a retirement income of less than $67,668. One dollar over that and at tax time you’ll be subject to a claw back in order to level it out.

GIS: Guaranteed Income Supplement

The most elusive of all the government programs is the GIS (guaranteed income supplement). This is for those people who have truly not saved for retirement. The GIS will pay a monthly income stream of $732.36 per month, and $485.61 per month to each spouse of a married couple to a maximum of $3,900/month.

So, if you’re pulling in $1000 after all your other income sources, you’ll get the full amount. If you’re pulling in $3,800, you’ll only get $100.

A Good Thing to Remember

This is important for many retirees to know about. The fact of the matter is that very few Canadians properly plan for retirement. The common plan is to work Monday to Friday, 9 to 5 to sustain yourself until you reach 65, att which point the CPP will kick in and it’s time to retire. With 86% of Canadians completely dependent on the CPP to sustain them, it’s a great reminder that these plans don’t take the place of saving your money. That point aside, many people who are in this situation don’t take advantage of the GIS program.

Breathe A Bit Easier

Understanding the tools and programs available to you, the stress involved with retirement planning can be hugely reduced. While the future of the CPP is in question, it’s important in the meanwhile to make sure that these programs reduce the risk of mistakes in our retirement planning.

Aaron Koo is a passionate networker and entrepreneur who gets people out of that “someday” mentality about understanding their finances.