The Basics of Retirement Planning

No one can realistically hope to have an accurate picture of his or her financial needs 15, 20 or 30 years hence. There are too many uncontrollable variables. Nevertheless, a few projections can provide a rough idea of your future cash flows. You can then create a structured savings program and adjust your planning as the years go by.

What you can Expect from the Government

There are two main government pension programs: Old Age Security (OAS) and the Canada/Quebec Pension Plan (CPP/QPP). Their benefits are indexed for inflation and taxed as income.

OAS pays approximately $480 per month starting at age 65. These benefits begin to be phased out, however, for retirees with taxable income above the “clawback” threshold of approximately $58,000, and disappear once their annual income exceeds approximately $96,000. Conversely, there is a special tax-free supplement for low-income seniors. It’s called the Guaranteed Income Supplement (GIS).

The maximum GIS payment is about $570 per month for a single retiree who has less than $13,700 in other income, including OAS. A couple could receive up to about $940 a month from GIS if they both receive OAS pensions and their joint income is less than approximately $17,900.

If you’ve contributed to CPP/QPP while working, you will be due as much as approximately $830 in monthly benefits. The actual amount is based on your contributions. These benefits are paid as early as age 60, but on a reduced basis. For example, you get 30% less if you start at 60 instead of waiting for the full entitlement at 65.

So, not counting GIS, government programs should provide $5,760 to $31,440 or so in annual household income. That may not seem like much, but OAS and CPP/QPP are meant to be an anchor, not your entire support. Together, they were designed to replace no more than 40% of the average national wage.

2004 figures, maximum entitlement, excluding any GIS

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