Retirement Planning

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It may mean the difference between a $15,000 government pension or an annual income that is more in-line with your expectations. Most financial planners believe you’ll need 70-80% of what you make annually to maintain your current lifestyle. Your company pension plan might help; however, after making allowances for inflation, it may not be enough to provide for a comfortable retirement.

If you have a decade or two to plan for your retirement, start with a Registered Retirement Savings Plan (RRSP) and make regular contributions. Enjoy the maximum benefits of tax-free compound growth. While you're at it, get a good advisor and together develop an independent plan.

If you plan to retire within the next five years, then it’s time to start to seriously consider your options. Review your portfolio regularly with a financial advisor. Take stock of your future. Consider your mix of assets and to plan to move from more aggressive, growth-oriented investments to conservative ones that will protect your capital.

Couples may want to try and balance your incomes at retirement, to pay less in taxes. Consider contributing to Spousal RRSPs. And plan to start early, particularly if your incomes vary greatly.

If you've maxed out your RRSP contributions, life insurance can provide you a way to invest money so it can grow tax-free.

Flexible life insurance coverage, a wide array of investments, and internal safeguards can help to ensure you are rewarded with all the advantages of tax-free growth.

Here's a simple way to start planning:

• First, list all your sources of income: RRSPs, other investments, Canada Pension Plan, Old Age Security and company pension plan benefits.
• Determine how much money you’ll need each month and figure out which sources of income you should draw upon first
• Examine your investment options. From Registered Retirement Income Funds to annuities, there is a range of options available to you.
• Discuss your financial plan with a financial advisor. Learn how you can minimize taxes, determine whether you need to rollover your company pension plan to an annuity fund.

Convert Your RRSP into Income

You have three choices to convert your Registered Retirement Savings Plan (RRSP) into retirement income. These must be determined and in place by the end of the year in which you turn 69 years old.

1. You can cash in your RRSPs, and face a potentially hefty tax bill.
2. You can convert your RRSP into a Registered Retirement Income Fund (RRIF).
3. You can buy an annuity. You might consider a Life Income Fund (LIF) or a locked-in Retirement Income Fund (LRIF)

Invest in RRIFs

Think of a Registered Retirement Investment Fund (RRIF) as an extension of your RRSP. Your plan stays intact, while your investments grow tax-free. The only difference - you must withdraw a certain amount from it each year. The value of your RRIF and how long your income will last will depend on the investments you choose, how those investments perform, as well as how much income you plan to withdraw each year*.

Invest in Annuities

If you want a guaranteed income, an annuity may be right for you. Payments are fixed; however, you cannot increase payments or withdraw larger amounts. Annuities are ideal to cover fixed costs or if you are concerned about outliving your income.

There are different types of annuities:

• Guaranteed Life annuities pay you a guaranteed income for as long as you live
• Fixed Term annuities pay you a set income for a guaranteed period of time (usually to age 90)
• Joint-Life-and-Last Survivor annuities pay a guaranteed income while you and your spouse are alive, and continue paying that income to the surviving spouse if one of you die.

Invest in LIFS

Exercise more control over your pension investments with a Life Income Fund (LIF). A LIF is a type of RRIF that let's you decide what you want to invest in, and how much you want to withdraw each year*. Your investments grow tax-free. Hoever, the big difference between a RRIF and a LIF is that the government requires you to purchase a life annuity before you turn 80 years old. You can purchase a LIF if your funds were in a Registered Pension Plan (RPP), Locked-In RRSP, Locked-In Retirement Account (LIRA) or in another LIF.

Invest in LRIFs

An LRIF and a LIF are similar; however, a Locked-in Retirement Income Fund (LRIF) permits lifetime control over investment decisions and does not require the mandatory purchase of a Life Annuity by age 80. An LRIF as well as a LIF have both annual minimum and maximum withdrawal limits. They are calculated slightly differently. Minimum limits are identical between RRIFs, prescribed RRIFs, LIFs and LRIFs however the maximum withdrawal limit for an LRIF is a function of age, previous year-end balance and performance history. You might want to get professional advice before making a final decision on LRIFs.

RETIREMENT PLANNING TOPICS

*There are government limits on how little or how much you can withdraw from your RRIF or LIF each year. Also, some investment products are not available in all provinces.