Many Québeckers make the mistake of not being fully aware of their sources of retirement income and of never calculating or having calculated the savings necessary to compensate their loss of income. Many of them risk facing a harrowing dilemma: working longer or slowing down their lifestyle throughout retirement.
Did you realize that you could be retired for over 30 years? That is almost the entire duration of your career. The longer you live, the longer you will need money. Therefore, you need to save accordingly or continue working.
To find out how much you need to save, you must first find out where your money will come from.
Finding out your future sources of income
Certain persons rely on government pensions too much, whereas others believe they will not receive any. Let us clarify this!
Public retirement plans from the Government of Canada and the Gouvernement du Québec, that is, the Old Age Security program (OAS) and the Québec Pension Plan (QPP), guarantee you basic income throughout retirement. However, for most people, basic income will not be enough.
To compensate for the shortfall, you will need income from a workplace pension plan or from your personal savings. To maintain your standard of living once you have retired, you will need between 60% and 80% of your average annual income before taxes of your last five years of service. Do the math.
Old Age Security pension
The Old Age Security pension is paid monthly to all Canadians aged 65 or over, whether or not they have worked. The amount, which is less than $1000 a month, is the same for everyone.
Québec Pension Plan
The pension you will receive throughout retirement depends on:
- the number of years during which you made contributions to the
QPP;
- your income during that period;
- the age at which you would like to start receiving your pension.
The pension increases each year, is adjusted to the cost of living and is guaranteed for life.
Workplace pension plan
If a workplace pension plan is offered, your employer could pay a contribution as well: an advantage that really pays off. You do not want to be a member of that plan? That is like turning down free money. Generally, contributions can be automatically withheld from your pay, which makes it easier to save.
Personal savings
Personal savings (e.g.:RRSP and
TFSA) compensate for the gap between your financial needs and income from public plans and your workplace pension plan, if that is your case. The sooner you start saving, the more it will pay off thanks to compound interest. This means that interest is calculated from both your investments and the interest accrued from these investments. In other words, if you start saving sooner rather than later, you will have to put less money aside.
Start thinking about your retirement and make a
simulation of your savings needs with SimulR.