How to Finance Your Retirement?

Let's see how to plan your finances for retirement.

How much money do you need in retirement?

It depends partly on what your project is. Usually, to maintain your current lifestyle, you will need to replace between 60% and 80% of your gross income. You do not need to replace 100% of your income because when you stop working, there are expenses you no longer have.

Therefore, if you earn $60 000, experts estimate that you will need between $36 000 and $48 000 per year to maintain your standard of living in retirement. If you have special projects, such as travelling, you should add an estimate of the cost to the amount to make sure you can achieve them.

How long is retirement?

Let's look at the data on life expectancy in Québec. A woman aged 65 today has a one in two chances of living until age 91 and one in four chances of living until age 96. A man has a one in two chances of living until age 89 and one in four chances of living until age 94. If you are in good health and you have good life habits, you could live longer than most people.

To ensure you do not run out of money, consider the likelihood of living to age 95. Your retirement could last 30 years if you stop working at age 65.

What are the sources of income you can count on when you retire?

In order to know how much you need to save for retirement, you need to know how much income you will need each year and the duration of your retirement. Rest assured: you will have help in accruing the total amount you need for your retirement! Yes, you will have to save for a long time, but you will also be able to count on reliable sources of income.

As basic income, you can count on the Old Age Security pension from the Government of Canada and the pension under the Québec Pension Plan.

Then, what could help you is a workplace pension plan. Your income will also come from your personal savings, that is, the money you have set aside.

Old Age Security pension

If you earn the average salary, the Old Age Security pension from the Government of Canada will replace around 15% of your income in retirement. You can apply for that pension as of age 65 and, if you wait until later, the amount will increase. It is an income that is guaranteed for life and is adjusted to the cost of living each year.

Pension under the Québec Pension Plan

You can also count on the Québec Pension Plan (QPP). The retirement pension will provide for a little over 30% of the income you earned during your career. The contributions that you pay to the QPP on each pay determine the amount. Your contributions correspond to a percentage of your salary. Therefore, the higher your salary, the higher your contributions, up to a certain maximum. Higher income will provide you with a higher pension, up to a maximum.

The pension is calculated based on the age at which you start receiving it. If you start receiving it at age 65, you will have 100% of the pension. After age 65, you will have a higher pension for life, and if you receive it between ages 60 and 65, your pension will be lower for life.

Choosing the age at which you will apply for your pension is therefore a decision that can have a big impact on your income in retirement. Like the Old Age Security pension, the pension under the QPP is a guaranteed income for life that increases each year because it is adjusted to the cost of living. You can verify on your Statement of Participation whether your contributions are entered and see the estimate of your retirement pension. Consult your Statement in My Account.

For more information on the other sources of income, consult the following web pages:

• Why become a member of your workplace pension plan?
• What should you know about your workplace pension plan?
• 5 tips to save efficiently