Contribute the maximum to retirement plans
Nearly 14 million Canadians will be retiring over the next 20 years.1 If you are one of these people, you may be wondering if you will have enough money to live comfortably in retirement.
What’s behind the retirement concerns?
Canadians are living longer. The average man lives to age 79, while the average woman lives to age 83.2
We retire younger. The average retiree leaves the workforce around age 61. And since you can expect to live for many more years in retirement, your savings need to last for a long time.
Defined benefit pensions are fading. Pensions that promise retirees a percentage of salary are less common because many companies have switched to defined contribution plans.
CPP, QPP and OAS won’t be enough. The Canada Pension Plan (CPP), Quebec Pension Plan (QPP) and Old Age Security (OAS) were never meant to be the sole source of income in retirement. The average monthly benefit to a single person is $1,050.13.3
Saving for retirement is more important than ever before
How to succeed? Pay yourself first. It’s a question of priorities. If you pay yourself first in the way of retirement contributions, you ensure that your most important goal receives the funding it deserves. After you pay yourself first, then you can budget for your other expenses.
Retirement plans offer:
- Pre-tax contributions. Many types of retirement vehicles allow contributions to be made before taxes, offering you a tax break as well as savings opportunities. Registered Retirement Savings Plans (RRSPs) allow you to contribute an amount equivalent to 18 per cent of your earned income (to an annual maximum) and enjoy both a tax deduction and the opportunity for tax-deferred growth.
- Matching contributions. If you’re fortunate to work for a company that offers matching contributions, take advantage of them! If your company matches the first three or four per cent of your contribution, for example, you should contribute as much as you can, but at least enough to receive the full benefit of the match.
- Tax deferral. Tax benefits and compound growth make regular contributions grow faster than you might think. Over long periods of time, tax deferral makes an incredible difference in the amount you accumulate.
- Painless savings. Saving regularly, through an employer’s pension plan or Group RRSP, is the easiest and most convenient way to save. Your regular contributions will be deducted from your paycheque (pre-tax dollars) each pay period. You don’t actually see the money, so you don’t miss it. And of course, it lets you pay yourself first. There are also Tax-Free Savings Accounts (TFSAs) that allow you to contribute up to $5,500 each year.4 Contributions are made with after-tax dollars (you don’t get a tax deduction), however any investment growth within the TFSA and withdrawals from the TFSA are tax-free.
Whether or not your employer has a plan, or you’re self-employed, your advisor can help you set up a systematic investment program. Your contribution can be automatically deducted from your bank account on a monthly basis, so you never have to write a cheque or look for a stamp.
Speak with your advisor
Securing a comfortable retirement may be easier than you think. Take advantage of the tax breaks and any matching opportunities available. Pay yourself first – and get started today.
1 Statistics Canada, CANSIM Table 052-0001. Reproduced and distributed on an as-is basis with the permission of Statistics Canada.
2 Statistics Canada, tatcan.gc.ca/tables-tableaux/sum-som/l01/cst01/health72a-eng.htm – 2009. Reproduced and distributed on an as-is basis with the permission of Statistics Canada.
3 As of May 2013 – servicecanada.gc.ca/eng/isp/pub/factsheets/rates.shtml and servicecanada.gc.ca/eng/isp/oas/oasrates.shtml
4 Increases, rounded to the nearest $500, to the yearly contribution limit will be applied as warranted by the consumer price index.
<INSERT ADVISOR NAME AND CONTACT INFORMATION >- This content is provided courtesy of Solut!ons from Manulife Financial
© 2013 Manulife Financial. The persons and situations depicted are fictional and their resemblance to anyone living or dead is purely coincidental. This media is for information purposes only and is not intended to provide specific financial, tax, legal, accounting or other advice and should not be relied upon in that regard. Many of the issues discussed will vary by province. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation. E & O E. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Any amount that is allocated to a segregated fund is invested at the risk of the contractholder and may increase or decrease in value. 03/13
