In Canada, the age for eligibility for retirement is set at age 65 in government plans and in most private plans. There are, however, other possible scenarios.
Before age 60
- If you have a pension plan through your employer, you could be eligible for early retirement. Your benefit will be reduced due to the fact that you will receive your pension over a longer period of time.
- Personal savings are the only other source of available income.
Between 60 and 64
- Everywhere in Canada, except in Quebec – for which the equivalent is the Quebec Pension Plan (QPP), you can choose to start receiving a pension through the Canada Pension Plan (CPP).If you do so before the age of 65, there will be a penalty. You will only receive a portion of the pension for the rest of your life.
- If you have a pension plan through your employer, you could be eligible for early retirement. Your benefit will probably be reduced due to the fact that you will receive your pension over a longer period of time.
At age 65
- All the government plans are available without penalty.
- You can choose to defer payment of government plans up to age 70.
- If you have a pension fund through your employer, you qualify for the maximum pension.
If you’re thinking of retiring early, take the time to consider the impact that it will have on your savings.
- You will save for a shorter period.
- Your savings will generate returns for fewer years (your money will therefore not have grown as much).
- You will have to deal with increases in the cost of living (that is, each year of retirement).
- You will have to live several years with your savings (with life expectancy continually increasing, you could outlive your savings).
For advice and answers to your questions, contact us.
Advice in order to see clearly
What expenses will be reduced or eliminated in retirement?
Financial planning experts estimate that, in order to maintain your standard of living, your retirement income should be about 70% of the gross salary you were receiving before retirement.
An income that is lower than your current employment income will be enough, as many expenses will be reduced or eliminated by retirement:
- Job-related expenses: contributions to employment insurance, the Quebec Pension Plan or the Canada Pension Plan, professional or union dues, group insurance premiums, etc.
- Lifestyle expenses: the cost of transportation and clothing, mortgage payments, dependent children, etc.
- Expenses related to income tax: reduction in taxable income, pension income credit, age credit, etc.
- Retirement savings: contributions to the employer’s pension plan, RRSP, TFSA, etc.
Government plans, such as CPP, OAS and QPP, are the only basic sources of income. It will be necessary for you to have additional savings to supplement this income.
The higher your pre-retirement income, the less these public plans will be enough to replace your income. If this is your case, the amounts that you need to invest in a private retirement plan should therefore be more substantial if you want your retirement income to be 70% of your salary.
The 70% replacement ratio for everyone?
You need to view the 70% rule as a general guideline. However, depending on the lifestyle that you want in retirement (travel, leisure, indulgences) and based on your personal situation, this percentage could be too high or too low for you. Remember to consider unexpected events and how long your retirement will last.
Budget for success
There are many reasons for creating a budget. Planning for your income in retirement is very important. A budget will help you stay focused on your goals.
Use our follow-up and planning tools to assess your progress in reaching your retirement goals and develop your savings strategy.