In part one of this series we looked at your current wealth. The second part examined your saving rate. If you worked through these steps, then you should have a good idea of where you’re standing. It could be that you’re doing pretty well, or it could be that you’re hanging on paycheque to paycheque. Either way, if you want to plan for your retirement you have to know what your current situation is.
Today we’re going to look at where your retirement income is going to come from. Canadians have four sources of income when they’ve retired from working:
- Government retirement assistance
These are government programs to provide income to senior citizens; Old Age Security (OAS), Canada Pension Plan (CPP), Guaranteed Income Supplement (GIS), that sort of thing.
- Your job’s pension
- Registered Savings
- Non-registered Savings
Your Tax Free Savings Account (TSFA), savings you have in the bank, anything you own that you can sell for money (equity in your home, etc)
As a guideline, most experts say that your retirement income should be 70% of your working income. This assumes that your house is paid off, your kids have left, you don’t have to support them and you’re not commuting to and from work every day. It’s not assuming that you’re travelling the world and living it up, this is assuming that you’re being fed everyday and you have money to keep a home/condo in good condition.
What sort of government assistance does the average Canadian qualify for?
At this link you can see how much you can collect. For Old Age Security, you can collect $558 per month (it can vary depending on your situation, but let’s use that as a base). The average amount someone collects for their CCP is $611 per month (again, this can vary and be as much as $1,038 a month). Let’s say you’re in the average, that means you’ll collect about $14,000 a year in government benefits.
This will go up over the years with inflation, but not much. The lesson from this is that you shouldn’t rely on the government to support you in your old age.
Let’s say you’re getting by with making $65,000 a year as a VFX artist. In retirement, it’s assumed that you need 70% of this. That means you need $45,500 a year. If you get $14,000 a year from the government, that brings it down to $31,000 a year. If you retire at 65 and the average Canadian lives to 80, that’s 15 years, so you’d need $465,000 saved up. Keep in mind that I’m not accounting for inflation, this is just a very wild estimation off of the top of my head.
This is easy. Since you work in VFX, you don’t have a pension being saved up for you.
You should check your employee handbook to see if your studio does anything like matching your RRSP contribution (usually up to a low limit, if this is done at all). Actually, let me know if your company offers any sort of retirement help, I’ll publicize it here on the blog, it’s a very cool benefit for a studio to offer.
You should check and see if your partner has a pension at their job. These days it’s pretty much only public service employees (teachers, police, nurses, government workers, etc) that still have pensions. If your partner has a pension, consider yourself lucky, a significant burden of your retirement will be taken off your shoulders. There are two types of pension, defined contribution and defined benefits. Defined benefits are the kind that guarantees a specific amount when you retire, that’s the one you would want.
One of the major platforms of the Liberal party in the last Provincial election was that they would create the Ontario Retirement Pension Plan. It’s too early to speculate on how this will turn out, but if it works as planned it could be a great help to younger workers.
I will write more on pensions in a later post, especially if the ORPP becomes a reality. For now I’m assuming that most of the people reading this don’t currently have access to one, so I’m going to skip over it.
So what does all this mean? It means that a significant portion of your retirement income is going to have to come from you. This means that you are going to have to put aside money for your RRSP and your TSFA. I know that I’ve said this before, but you will have to get into the habit of saving money. I know that this subject can really freak people out, when you look at the numbers it can be quite scary. This leads a lot of people to totally avoid the subject in the years when they could be making wise decisions.
I want to stress that it’s not too late to make positive changes that will benefit you for years to come. We'll take a look at some of these changes in a later post. In the meantime, if I have anything wrong here, please comment below. I think it's important that we have these types of discussions within our community, ignoring it doesn't make it go away.