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Chapter 14 Retirement Planning. 14-1. Learning Objectives - Chapter 14. Recognize the importance of retirement planning. Analyze your current assets and liabilities for retirement. Estimate your retirement spending needs. Identify your retirement housing needs.

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Chapter 14 retirement planning

Chapter 14Retirement Planning


Learning objectives chapter 14
Learning Objectives - Chapter 14

  • Recognize the importance of retirement planning.

  • Analyze your current assets and liabilities for retirement.

  • Estimate your retirement spending needs.

  • Identify your retirement housing needs.

  • Determine your planned retirement income.

  • Develop a balanced budget based on your retirement income.


Learning objective 1 recognize the importance of retirement planning
Learning Objective # 1Recognize the importance of retirement planning.


Misconceptions about retirement planning
Misconceptions About Retirement Planning

  • My expenses will drop when I retire.

  • My retirement will only last 15 years.

  • I can depend on the government and my company pension to pay for my basic living expenses.

  • My pension amount will keep pace with inflation.

  • My employer’s health insurance plan will cover my medical expenses.

  • There’s plenty of time for me to start saving for retirement.

  • Saving just a little bit won’t help.


The importance of starting early
The Importance of Starting Early

  • To take advantage of the time value of money.

    • If from age 25 to 65 you invest $300 a month (9%) at age 65 you’ll have $1.4 million in your retirement fund.

    • Wait ten years until age 35 to start and you’ll have about $550,000.

    • Wait twenty years until age 45 and you’ll have only $201,000 at age 65.


Why think about retirement planning now
Why Think AboutRetirement Planning Now?

  • People are spending more years (16-20) in retirement.

  • A private pension and government benefits are most often insufficient to cover the cost of living.

  • Inflation may diminish the purchasing power of your retirement savings.


Learning objective 2 analyze your current assets and liabilities for retirement
Learning Objective # 2Analyze your current assets and liabilities for retirement.


Conducting a financial analysis
Conducting a Financial Analysis

Review Your Assets

  • Housing.

    • If owned, probably your biggest single asset.

    • If large equity, reverse annuity mortgage.

  • Life insurance cash value can be converted into an annuity.

  • Other investments, such as stocks and bonds.


Learning objective 3 estimate your retirement spending needs
Learning Objective # 3Estimate your retirement spending needs.


Estimating retirement living expenses
Estimating Retirement Living Expenses

  • Spending patterns and where and how you live will probably change.

  • Some expenses may go down or stop.

    • Work expenses - gas, lunches out.

    • Clothing expenses - fewer and more casual.

    • Housing expenses - house may be paid off, but taxes and insurance may go up.

    • Federal income taxes will probably be lower.


Estimating retirement living expenses1
Estimating Retirement Living Expenses


  • Other expenses may go up.

    • Life and health insurance unless your employer continues to pay them.

    • Medical expenses increase with age.

    • Expenses for leisure activities.

    • Gifts and contributions.

  • Inflation will raise the amount you need to cover your expenses over your probable 16-20 years in retirement.


Learning objective 4 identify your retirement housing needs
Learning Objective # 4Identify your retirement housing needs.


Planning your retirement housing
Planning Your Retirement Housing

  • Think about where you want to live.

  • Consider the cost of living and taxes.

  • Type of housing as needs change.

    • Staying in their present home is what most people prefer.

    • Universal design is a home built to allow for potential physical limitations.

    • If not built using universal design, home may need to be retrofitted.

    • Continuing care retirement community provide increasing levels of care.


Avoid retirement housing traps
Avoid Retirement Housing Traps

  • If you plan to move when you retire…

    • Write the local Chamber of commerce to learn about taxes and the economic profile.

    • Check on provincial income and sales taxes and taxes on pension income.

    • Subscribe to a local weekend edition paper.

    • Estimate what your utility costs would be in the area.

    • Rent for awhile instead of buying immediately.


Learning objective 5 determine your planned retirement income
Learning Objective # 5Determine your planned retirement income.


Planning your retirement income
Planning Your Retirement Income

  • Canada/Quebec Pension Plan (CPP/QPP)

    • Provide disability benefits, retirement pensions and survivor benefits

    • Contributions based on salary, Maximum per year

    • Can collect reduced benefits as early as 60

  • Old Age Security (OAS)

    • Must be over 65 years old

    • Residency requirement

Public Pensions


Planning your retirement income1
Planning Your Retirement Income

  • Guaranteed Income Supplement (GIS)

    • Payable to low income OAS recipients over 65 years of age

  • Spouse’s Allowance (SPA)

    • Benefits to widow, widowers and spouses of OAS beneficiaries who are between 60 - 65

Public Pensions


Planning Your Retirement Income

  • Money purchase pension plan

  • Specifies contribution from the employer and/or employee

  • does not guarantee pension benefit you will receive

  • Vesting is employees right to at least a portion of the benefits accrued under an employer pension plan, even if they leave employ of company before retirement.

Employer Pension Plans - Defined Contribution


Planning your retirement income2
Planning Your Retirement Income

  • A plan that specifies the benefits the employee will receive at the normal retirement age

  • Employer’s contribution not specified

  • Employer makes the investment decisions for your and their contribution, but your benefit amount stays the same regardless of how the investments perform.

Employer Pension Plans - Defined Benefit


Planning your retirement income3
Planning Your Retirement Income

  • Contributions from employer only

  • Tax-deductible for company

  • Based on company’s net income

  • DPSP holdings taxed when you withdraw them

  • Contributions to DPSP are subtracted from allowable RRSP contributions

Deferred Profit Sharing Plan


Planning your retirement income4
Planning Your Retirement Income

  • Property of employees

  • Can take money out if you need it

  • Participation may lower payroll tax withholdings

Group RRSP’s


Pension plan portability
Pension Plan Portability

  • Legislations enforces right to transfer pension credits from one employer to another

  • Three options when changing jobs

    • Leave credits and receive pension on retirement

    • Transfer to new employer

    • Transfer benefits to locked-in RRSP


Personal retirement plans
Personal Retirement Plans

Registered Retirement Savings Plans

  • An RRSP is an investment vehicle that allows you to shelter your savings from income tax

  • Not a specific investment, but a way to register a variety of investments to shelter funds

  • Eligible investments include guaranteed funds, mutual funds, life insurance and life annuity products


Registered retirement savings plans rrsp s
Registered Retirement Savings Plans (RRSP’s)

  • Types of RRSP’s

    • Regular

    • Self-directed

      • can invest in all categories

    • Spousal

      • spouse is named as beneficiary

  • Contribution Limits

    • 18% of earned income to a maximum of $13,500

    • Maximum amount to increase in years to come

    • reduced by RPP contributions

    • can ‘carry forward’ unused room to later years


Registered Retirement Savings Plans

  • Options when you deregister your RRSP

    • full withdrawal

    • life annuities

    • fixed-term annuities

    • Registered Retirement Income Funds (RRIF)

    • Life Income Funds (LIF)

    • Segregated funds



  • Pay a fixed level of payments on a regular basis for a specified amount of time or until death of holder

  • Advantages

    • Income payments until death

    • Level payments

    • Simple

    • No record-keeping

    • Legitimate tax shelter

    • No investment limits

    • Tax-free transfers



  • Disadvantages

    • Less control over investments

    • Less control over income payout

    • No inflation protections, unless indexed

    • No opportunity for growth

    • No tax deferral

    • No lump sums

    • No protection for spouse, unless joint

    • No estate planning benefits


Learning objective 6 develop a balanced budget based on your retirement income
Learning Objective # 6Develop a balanced budget based on your retirement income.


Living on your retirement income
Living on Your Retirement Income

  • Be sure you are receiving all the income you are entitled to

  • May need to make some changes in your spending plans

  • Take advantage of all tax savings and benefits available to seniors

  • May work part-time after retirement

    • be aware of how earnings affect your public pension


Investing for retirement
Investing for Retirement

  • Low yield safe investments must earn enough to keep up with or exceed inflation

  • Withdraw savings with caution

    • need to maintain enough to continue to live comfortably

    • may need to leave some in an estate for your heirs