used to be a fairly straightforward concept. An individual would
work until age 65 then leave the work force. Post-retirement
income would consist of Canada Pension Plan and Old Age Security
benefits, plus income from personal savings and if you were
fortunate, a company pension.
Today, there is usually no single concept that defines retirement. Individuals
have more flexibility in choosing the age at which they retire
and their retirement income options. While increased choices
are good, they bring with them increased pressures to make
There are three main pillars supporting Canadaís retirement income
system. Between these three pillars, the provision of pension
income is shared between government and individual Canadians.
The first and second pillars comprise of Canadaís public pension
system, Canada Pension Plan (CPP), and Old
Age Security system (OAS). CPP and OAS are not intended
to meet all the retirement income needs of Canadians, but
rather to provide a base on which to build additional private
savings for retirement..
The third pillar supporting Canadaís retirement income
system consists of Tax Assistance for Retirement Saving.
The tax system encourages retirement saving in registered
pension plans (RPPís), deferred profit sharing plans (DPSPís),
and registered retirement savings plans (RRSPís). The effect
is to defer taxation on both the original amounts saved and
the investment earnings on them until such time as they are
withdrawn as income.
Some of the many retirement decisions that an individual may face include:
►††† What age should I retire?
►††† When should I begin receiving my Canada Pension Plan benefit?
►††† Should I accept the standard company pension or should I transfer
my vested benefits into a locked-in-retirement account (LIRA)?
►††† Should I purchase a life annuity or should I keep my investments
in guaranteed investment certificates?
►††† When should I transfer my RRSP funds into a registered retirement
income fund (RRIF)?
►††† How much should I withdraw
from my RRIF each year?
There is usually no single right answer. The best choice will be strongly
influenced by your retirement objectives as well as your tolerance
for risk, and your desired level of financial security.
The amount of savings required at retirement also depends upon the form
it will take. The following forms of savings are specifically
intended for retirement:
►††† Defined-benefit RPPís
►††† Defined-contribution RPPís
►††† Locked-in Retirement Accounts
forms of savings are important in retirement planning, even
though they may not be specifically intended for retirement,
►††† Equity in a principal residence
►††† Shares of a corporation
►††† Equity in other capital properties
►††† Non-registered portfolio
The Importance of Professional Advice
We solicit doctors, lawyers, dentists and other professionals for their
expert advice. Yet, for our financial future, we often rely
on our own knowledge or friendsí suggestions. Using a financial
planner could mean a difference of thousands of dollars towards
your retirement. Working with a financial planner can be a
helpful step in securing your retirement future.
information contained in this commentary is designed to provide
you with general information only, and is not intended to
be comprehensive advice applicable to the circumstances of
any individual. We strongly urge you to seek professional
assistance before acting upon information included herein.