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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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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.


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.


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.


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.


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.


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


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