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Retirement Planning in Canada: How and When to Start

Let’s talk about retirement planning in Canada. Depending on the financial expert you ask, you’ll get many different viewpoints and advice on what age you should retire at, and the strategy you should take when crafting your retirement plan.

In the end, retirement planning is simply about making sure that you secure the finances you need to meet your life goals and future expenses when you retire.

Retirement isn’t how it used to be when our parents retired. The workforce has changed, lifestyles have changed, and many other factors need to be taken into account for Canadians retiring soon:

  • Companies and retirement plans have changed. It used to be that the company you worked for would be the one place you worked for your entire career. Pension funds were robust and well-funded. Today, workers move between companies and bring their pensions with them. Contract labour is on the rise, some without pension options. Companies go bankrupt or have massive layoffs, making them untrustworthy to keep your pension with your company. Pension funds have changed.
  • Companies are offering buyouts. Today, more companies are offering buyout offers to their senior employees to encourage an earlier retirement, and allow them to downsize or save on wage cost. 
  • Greater life expectancy of 83 years. Our average life expectancy continues to rise. You can now expect to be living longer into retirement, some studies showing you’ll be living till you’re at least 83 years old. This means your retirement period could last 20 to 25+ years and the expectation that you can get away with planning for a shorter retirement window is no longer realistic.
  • Retirement aspirations and goals have changed. Canadian retirees are choosing not to downsize or move into retirement communities. Instead, they are preferring to stay in their homes and live active lifestyles. This leads to requiring a higher retirement income level to maintain that active lifestyle.
  • Inflation and cost of living continues to climb. Inflation has a big impact on your retirement now more than ever. Your cost of living has gone up exponentially, which means you’ll need more retirement funds to keep paying for your everyday expenses.

Taxes on your pension withdrawal

One thing that hasn’t changed in a long time in Canada, are the taxes surrounding your pension payout. When you take your pension out as a lump sum, there is a hefty tax hair cut and a significant amount will be immediately taxed, typically hundreds of thousands of dollars.

This is primarily because of outdated Canadian legislation from 1990.

Why is this bad? If you are terminated by your employer and the company you’ve been working at for many years abandons you, you likely don’t want to leave your pension with that company and may want to take the cash to set up your own investment for your retirement. This outdated tax legislation penalizes you for doing that.

We’ve started a petition online to help change this. Sign it here.

How old should you be to start planning for retirement?

As soon as you start working. Putting even a little bit aside each month can compound quickly over time and steadily build up your pool of retirement funds. 

Check out our Retirement Calculators to see how much you should be putting away to reach your retirement goals, as well as see how fast your funds grow and what age you can retire comfortably at.

At what age should I retire at?

A common question that is asked is… “At what age should I retire given my present retirement fund and future, planned investments?”

Luckily for you, we’ve put together a Retirement Age Calculator to help you make that decision easier!

Our calculator will help you know your Projected Retirement Age, the Number of Contributions, and final value of your retirement fund at that specific age.

Types of Retirement/Pension Plans

  • Company pension plans: Some companies offer a pension plan. Always make the maximum contributions, especially if your employer matches you dollar for dollar on your contribution amount. Know whether your plan is a Defined-Contribution Plan or Defined-Benefit Pension Plan, and understand the differences between the two.
  • Registered Retirement Savings Plan (RRSP): With an RRSP, the government gives you a RRSP contribution limit every year. You’ll want to max out your RRSP contributions each year because it helps to lower your taxable income. 
  • Tax-Free Savings Account (TFSA): A TFSA is a financial account that you can use for investments and not have to worry about having those funds taxed when you withdraw them. Your savings to grow tax-free! However, there is a limit each year on how much money you are allowed to put into your TSFA.
  • Investment accounts: These are taxable and include things like stocks, bonds, mutual funds, GICs, etc. If you’re putting your retirement funds into an investment account, just be sure you understand the risk level because market fluctuations can have a big impact on your funds. 

About Pension Solutions Canada

With over 20 years of financial planning experience, we’ve been building successful clients since 1995. We fight to ensure you get the best pension payout possible when you retire or are laid off by your employer with a defined-benefit pension plan. Let our experts give you a second opinion on your pension commuted value, and review your options with you – completely free at no cost to you!

Call us for a free consultation: 1-888-554-6661

Let us quarterback the pension process

With over 20 years experience, we’re here to help you navigate the pension process each step of the way.

Understand your choices

Pensions can be complex, with outdated tax legislation and rules put in place to make it difficult. We’re here to help.

Leave your pension or move it out

We provide you with a variety of options, including taking your money out to create your own investment for retirement.

Watch our FREE pension video presentation online!

Learn about your 3 pension options

Watch the video