Planning for retirement

1. Planning for retirement Algonquin College May 22, 2012

2. Preparing to retire • When is the right time to retire? • Sources of retirement income • CAAT Pension Plan • Government pensions • Savings • Starting your pension

3. When should I retire? • Personal readiness • Career readiness • Financial readiness

4. How much money do I need? Retirement plans affect your retirement income needs • Lifestyle • Expense patterns • Re-employment options

5. How much money do I need? • Some expenses stop • Employment deductions, retirement savings, work expenses • Some new expenses start • Health and related premiums • Other changes • Discounts and deductions • Home, mortgage, children

6. CPP pension OAS pension Bridge Benefit CAAT Plan Pension savings What are my sources of retirement income? Early Retirement Date Age 65

7. The CAAT Pension Plan provides • Predictable retirement income, paid monthly • For life • Defined benefit pension plan – based on your years of work and salary • Earned pension not affected by volatile market

8. What does the CAAT Pension Plan do for me? • Your pension builds throughout your career • Join when you are hired • Earn service as you work and contribute • Transfer in or purchase service if you can • Watch your pension grow each year

9. Saving for retirement

10. Pension myth My contributions pay for most of my pension

11. Value Member retires at 60 Lifetime pension: $21,967 Bridge paid to 65: $7,036

12. When am I eligible to retire? Age 65 • Normal retirement – end of the month you turn 65 Early Retirement • Age 55 (with at least 2 years of service) • Age 50 (with at least 20 years of service) • Reduction could apply • Includes bridge benefit paid to age 65

13. AYMPE: Average of the Year’s Maximum Pensionable Earnings for the year of retirement and 4 preceding years. Pension formula HAPE: Average of your earnings for the 60 consecutive months of pensionable service during which earnings were highest

14. Bridge benefit formula

15. Retiring at age 65 – Cynthia’s story • Cynthia is planning to retire at age 65 • She has worked at her college for 29 years • Her highest average pensionable earnings are $74,000

16. Cynthia’s pension calculation Cynthia’s highest average pensionable earnings: $74,000

17. Retiring before age 65 Two kinds of early retirement pension • Unreduced pension • Reduced pension

18. When can I retire on an unreduced pension? 85 Factor • Your age + service = 85 or more 60/20 Rule • You are age 60 or more and have 20 years of service or more

19. What if my pension is reduced? • Reduction is 3% for every year before earliest unreduced retirement date(0.25% / month) • Adjustment is permanent • Applies to lifetime pension • Applies to bridge benefit

20. Retiring on a reduced pension – David’s story • David is 56 and ready to retire • His highest average pensionable earnings are $75,000 • His total service in the Plan is 23 years and includes purchased service • His pension will be reduced

21. Calculating the lowest reduction factor • Age 65 65 - 56 = 9 years x 3% = 27% • 60/20 Rule 60 - 56 = 4 years x 3% = 12% • 85 Factor (85-79)/2 = 3 years x 3% = 9%

22. Retiring on a reduced pension David’s pension calculation includes an adjustment of 9%

23. Retiring on a reduced pension Because he is under 65, David will receive a bridge benefit until he is 65. It will be adjusted by the same factor as his early reduced pension.

24. David’s pension income David will receive $31,395 a year to age 65 • $2,616.25 / month to age 65 At age 65 when the bridge ends, he will receive $24,456 / year for life • $2,038.00 / month for life

25. Pension myth Once you hit the magic number, your pension stops growing

27. Retiring before age 65

28. Pensioners 2009 - 2010

29. Protecting the power of your pension • Inflation adjustment is cumulative • Based on Consumer Price Index • New amounts added each January 1st

30. Protecting the power of your pension Service prior to 1992 Service from 1992 – 2007 Service after 2007 Ad hoc Guaranteed Conditional

31. Your pension lasts a lifetime • Your surviving spouse receives a pension of 60% of your pension for life. • 75% survivor pension option • Survivor pension adjusted for inflation • Eligible children • Minimum 60 payments

32. Purchasing past service and leaves • Increases your pension and lowers your early retirement reduction rate • Check to make sure any eligible purchases are done

33. Plan for your needs Plan your retirement date Retire as early as 50, as late as 71 Bridge benefit for early retirements Reduction of only 3% / year Unreduced pension options Age + Service = 85 Age 60 with 20 years of service Age 65 Select survivor benefit of 60% or 75% 33

34. What are my sources of retirement income? CPP pension OAS pension Bridge Benefit CAAT Plan Pension savings 34 Early Retirement Date Age 65

35. Government pensions – CPP • Maximum pension: $11,840 ($986.67 / month) • Start as early as age 60 • Reduction applies • Start at age 65 with no reduction

36. Government Pensions – CPP • Apply for CPP 6 months before you want the payments to start • Get an estimate • Child Rearing Provision • To apply contact “Service Canada” • Payments made in the LAST 3 business days of the month

37. CPP Changes starting 2012 • Reduction increases to 0.6%/month by 2016 • Start CPP without any work interruption • Age 60 and under 65: can collect CPP on reduced basis, but must continue to contribute if working • Age 65+ can collect CPP while working and have the option of continuing to contribute and build more benefit • Drop more years with low or $0 earnings

38. Government Pensions – OAS Maximum OAS: $6,481.44 ($540.12 / month) • Starts at age 65 • “Claw back” applied to higher income

39. Collecting government pensions • Apply for CPP and OAS separately • Government pensions are paid in the last 3 business days of each month

40. Pension myth It takes 35 years of pension plan service to replace 70% of my income in retirement.

41. Income replacement – Cynthia Pre retirement income Retirement income $6,481 OAS $11,840 CPP = $51,627 70% of pre retirement income + personal savings $74,000 CAAT Pension $33,306

42. What are my sources of retirement income? CPP pension OAS pension Bridge Benefit CAAT Plan Pension savings 42 Early Retirement Date Age 65

43. Your savings – RRSPs • Tax sheltered savings now to enhance your income in retirement • Contributions are tax-sheltered • Contribute each year with “earned income” • Contribution amount based on your income • Carry forward unused contribution room • Payouts are taxable • Pension Adjustment affects RRSP room

44. Your savings – Tax Free Savings Accounts • Save up to $5,000 a year and don’t pay taxes on earnings • Any individual over age 18 can contribute • Earnings are tax sheltered • Withdraw funds at any time • Payouts are not taxable

45. Income splitting • Allocate up to 50% of pension income to lower-earning spouse • Split your income at tax time • Reassess each year

46. When you’re ready, submit your paperwork • Marriage breakdown • Plan needs complete details of any pension division • Incomplete marriage breakdown paperwork is #1 reason for a delay in the first payment

47. When you’re ready to retire – consider Estate planning • Your beneficiary designation and spouse information is up to date • Review your insurance needs and will Health insurance • Review your choices carefully • You make your choice at retirement • Consult with your HR department for details

48. Collecting your pension is effortless • Paid by direct deposit on 1st business day of the month • Pension + bridge are combined into one deposit • Payments are made in Canadian funds • Outside Canada, can receive a mailed cheque

49. Stay connected We send • Newsletters, handbooks • Bridge benefit reminder • Indexation info • T4A • Regular survey Keep in touch if … • You move • Your spouse or beneficiary info changes

50. www.caatpension.on.ca