Once you hit 65, it’s time to take that pension and retire, right? Not necessarily. While the retirement age across Canada may be 65, retiring the moment your pension kicks in may not be your best option financially if you are not prepared. It is crucial to start taking a serious look at your finances before you get to retirement age.
The first step is assessing how much money you will be receiving from your Canadian Pension Plan (CPP) . Your CPP retirement pension is based on how much and how long you have been making contributions, however, the average monthly amount is only $673.10. In most cases, this is significantly less than you are earning during your working career. There are ways of getting more out of your CPP, for instance, you can choose to take your pension later. If you wait until age 70 to take your pension, you will receive 42% more. It is also important to note that if you want to retire early, at age 60, you will receive 36% less than if you wanted until the standard retirement age.
With the average monthly amount earned from your CPP likely to be lower than what you earn while working, it’s important to focus on having some savings put away for your retirement. How much you should have in savings is completely subjective, and depends on your financial situation and lifestyle. The first step is to take into account your monthly income and expenses. Consider what you typically spend each month on your mortgage or ent, groceries, credit card payments, transportation, etc… If you know that your CPP won’t cover these monthly costs, then you will need to have money saved.
Don’t forget to take into consideration any monthly expenses that may be subject to change. If you are renting, consider the possibility that your rent may increase over the course of your retirement. If something unexpected were to arise, such as your home being damaged by flooding, or unplanned medical bills, will you have the means to cover this? If not, consider that you may need to have another savings system put into place to support your fixed income.
If you are close to retiring and are worried about your financial situation, I encourage you to seek the help of a financial expert, like a Licensed Insolvency Trustee. Most LIT’s provide free advice and can help you plan and adjust your budget for your retirement.