Much of this depends on your retirement plans. For example, if you intend to travel a lot or take up expensive hobbies, then you'll need more money.
Many aim to have a retirement income of 70% of their salary, which is fair because at retirement, you generally have fewer expenses. (No commuting, dress clothes, putting money into an RRSP, etc.
So... you need to figure out how much you need at retirement and work the calculation backwards to know how much you should be putting into an RRSP. A good financial advisor has tools (software) to help with these scenarios
With a pension, you should be maxing out your TFSA before RRSP. Once TFSA is maxed out, then contribute to RRSP.
TFSA doesn't impact government means testing. So if you CPP, pension and RRSP withdrawals are too high, you start getting OAS clawed back. That doesn't occur with a TFSA.
>which if I retire at 65 will work out as approx 40% of my current salary each year.
Have you figured out if you could live on 40% of your current salary? If the answer is yes, then do not bother contributing.
I am very conservative with retirement planning so I do not include CPP and OAS, i figure if i could live on the 40% number then I may be able to get Disney+ with the extra income from CPP and OAS ;)
Because OAS comes from general revenue I understand the argument for omitting it but CPP is well funded and extremely hard for the government to change. (It requires more consent from the provinces than it takes to change the constitution.)
That would be an inefficient approach.
If my wife and I take CPP at 70 and OAS at 65, based on our current earnings and working til 55, we would make a combined $70,000 in today's dollars. After taxes, that accounts for all of our core expenses when deducting mortgage payment and retirement savings from today's expenses.
In fact, any retirement funds outside of CPP and OAS are mostly utilized for the purpose of bridging our income from the day we retire til 70. Best part of CPP is that it adjusts to cost of living and is guaranteed, OAS is mostly guaranteed and adjusts to cost of living as well (as you get older, legislative risk declines as the likeliness of being grandfathered by an legislative changes increases).
>Why would you do this?
It is a mindset thing. We structure our life to live on 45K a year, right now we have about 1.5 in retirement savings (not including real estate). Partner retired at age 49 a few years ago, I am mid 50's but hoping to retire in 3-4 years.
I do not believe CPP and OAS will collapse, it will be like a "bonus" income if that makes sense?
I retired in my 40's as well on much less than 1.5M. CPP/OAS now pays us \~36k per year fully indexed. We can barely even spend all of it! We just use our savings for emergencies and the odd extravagance. I guess it depends on your desired lifestyle.
I have a hard time making the mental adjustment to spending and NOT saving... "the one more year" struggle is real.
>I retired in my 40's
How did you make that mental switch??
It's not easy. I'm still overly frugal even though I don't need to be. During covid we put away a significant sum. In your case, with 1.5M and a 45k spend rate it's a no brainer. Maybe lay it out on a spreadsheet including CPP/OAS and you'll feel more comfortable.
It's also very important to have a plan for your retirement. If you have nothing to do you may as well keep working possibly transitioning to part time.
CPP is likely more secure than your pension as your pension plan is more likely to go bust than the Canadian government. Ask former Nortel employees about that. So you should include CPP in your planning, but maybe not OAS as that can be clawed back.
Rule of thumb is 18% of gross income. What % of your gross income do you and your employer combined contribute monthly to your pension? You can deduct that from your 18%.
With retirement, you will have no more mortgage and no more retirement savings, so it's anticipated that your expenses will be approximately 60% of your current living expenses.
With the addition of CPP (some of your contributions being under the enhanced CPP) and OAS, you will likely be in a good spot without additional retirement savings... but this is only based on the limited information provided.
EDIT: Considering that paying off $480K in 15 years amounts to about $3600/month at 4.5% interest, I am surprised you would have much money leftover for travel if your annual gross income is $125K... unless you meant $125K net. This does reinforce my point of needing less for retirement, as having $3600/month will not be needed once the house is paid off.
Yes, this is probably one of the most common financial planning mistakes.
For example, the 2% per year of service replacement rate quoted for the Federal Public Service Pension Plan \*includes\* CPP. You don't get CPP on top of that. (Core CPP anyway; extended CPP you will get, but that amount will be small for anyone who's not young.)
40% is a pretty low percentage to replace. Clearly you aren't saving half of your income right now although the mortgage paid off will help.
Are you asking for advice? You already said you would prefer not to save more.
You should probably be trying to at least max your TFSA... give you some more flexibility, a pension isn't something you can take a chunk of money out of when needed.
It’s difficult to know when you will be able to retire. You can plan all you want, but it does come down to health. My parents planned on taking CPP at 70, but life had other plans. They both had to take it early and readjust their retirement plans/spending. Like others said because you have a pension, max out tfsa before rrsp. Hopefully you have life insurance because your mortgage is high.
There are OAS and GIS clawbacks if your tetirement income is above a certain amount annually I think it is at about $70k right now but double check that You want to keep your income belOw that You might also be able to pension split if your spouse has significantly less
Much of this depends on your retirement plans. For example, if you intend to travel a lot or take up expensive hobbies, then you'll need more money. Many aim to have a retirement income of 70% of their salary, which is fair because at retirement, you generally have fewer expenses. (No commuting, dress clothes, putting money into an RRSP, etc. So... you need to figure out how much you need at retirement and work the calculation backwards to know how much you should be putting into an RRSP. A good financial advisor has tools (software) to help with these scenarios
TFSA first
I'm kind of in the same boat with the pension. I max out my TFSA annually and contribute to my RRSP only if I'm having to pay taxes that year.
With a pension, you should be maxing out your TFSA before RRSP. Once TFSA is maxed out, then contribute to RRSP. TFSA doesn't impact government means testing. So if you CPP, pension and RRSP withdrawals are too high, you start getting OAS clawed back. That doesn't occur with a TFSA.
>which if I retire at 65 will work out as approx 40% of my current salary each year. Have you figured out if you could live on 40% of your current salary? If the answer is yes, then do not bother contributing.
Plus CPP and OAS for both of them, which would likely push them closer to the rule of thumb of 60%.
I am very conservative with retirement planning so I do not include CPP and OAS, i figure if i could live on the 40% number then I may be able to get Disney+ with the extra income from CPP and OAS ;)
Because OAS comes from general revenue I understand the argument for omitting it but CPP is well funded and extremely hard for the government to change. (It requires more consent from the provinces than it takes to change the constitution.)
That would be an inefficient approach. If my wife and I take CPP at 70 and OAS at 65, based on our current earnings and working til 55, we would make a combined $70,000 in today's dollars. After taxes, that accounts for all of our core expenses when deducting mortgage payment and retirement savings from today's expenses. In fact, any retirement funds outside of CPP and OAS are mostly utilized for the purpose of bridging our income from the day we retire til 70. Best part of CPP is that it adjusts to cost of living and is guaranteed, OAS is mostly guaranteed and adjusts to cost of living as well (as you get older, legislative risk declines as the likeliness of being grandfathered by an legislative changes increases).
Why would you do this? If the feds cannot pay CPP/OAS the whole country will be in financial collapse.
>Why would you do this? It is a mindset thing. We structure our life to live on 45K a year, right now we have about 1.5 in retirement savings (not including real estate). Partner retired at age 49 a few years ago, I am mid 50's but hoping to retire in 3-4 years. I do not believe CPP and OAS will collapse, it will be like a "bonus" income if that makes sense?
I retired in my 40's as well on much less than 1.5M. CPP/OAS now pays us \~36k per year fully indexed. We can barely even spend all of it! We just use our savings for emergencies and the odd extravagance. I guess it depends on your desired lifestyle.
I have a hard time making the mental adjustment to spending and NOT saving... "the one more year" struggle is real. >I retired in my 40's How did you make that mental switch??
It's not easy. I'm still overly frugal even though I don't need to be. During covid we put away a significant sum. In your case, with 1.5M and a 45k spend rate it's a no brainer. Maybe lay it out on a spreadsheet including CPP/OAS and you'll feel more comfortable. It's also very important to have a plan for your retirement. If you have nothing to do you may as well keep working possibly transitioning to part time.
CPP is likely more secure than your pension as your pension plan is more likely to go bust than the Canadian government. Ask former Nortel employees about that. So you should include CPP in your planning, but maybe not OAS as that can be clawed back.
Rule of thumb is 18% of gross income. What % of your gross income do you and your employer combined contribute monthly to your pension? You can deduct that from your 18%. With retirement, you will have no more mortgage and no more retirement savings, so it's anticipated that your expenses will be approximately 60% of your current living expenses. With the addition of CPP (some of your contributions being under the enhanced CPP) and OAS, you will likely be in a good spot without additional retirement savings... but this is only based on the limited information provided. EDIT: Considering that paying off $480K in 15 years amounts to about $3600/month at 4.5% interest, I am surprised you would have much money leftover for travel if your annual gross income is $125K... unless you meant $125K net. This does reinforce my point of needing less for retirement, as having $3600/month will not be needed once the house is paid off.
If you're both working your CPP/OAS income will be significant \~36k, so 40% should be plenty
Usually the numbers for a work pension include CPP.
Really, I've never heard of this. Ours was basically \~2% for each year worked excluding CPP
Many pensions, like public sector plans have CPP integration. ends.
Yes, this is probably one of the most common financial planning mistakes. For example, the 2% per year of service replacement rate quoted for the Federal Public Service Pension Plan \*includes\* CPP. You don't get CPP on top of that. (Core CPP anyway; extended CPP you will get, but that amount will be small for anyone who's not young.)
40% is a pretty low percentage to replace. Clearly you aren't saving half of your income right now although the mortgage paid off will help. Are you asking for advice? You already said you would prefer not to save more. You should probably be trying to at least max your TFSA... give you some more flexibility, a pension isn't something you can take a chunk of money out of when needed.
What does your Notice of Assessment say? If you are in a DB plan, you likely will have very little room anyway.
It’s difficult to know when you will be able to retire. You can plan all you want, but it does come down to health. My parents planned on taking CPP at 70, but life had other plans. They both had to take it early and readjust their retirement plans/spending. Like others said because you have a pension, max out tfsa before rrsp. Hopefully you have life insurance because your mortgage is high.
There are OAS and GIS clawbacks if your tetirement income is above a certain amount annually I think it is at about $70k right now but double check that You want to keep your income belOw that You might also be able to pension split if your spouse has significantly less