For many newcomers to Canada, the initial years are mostly spent trying to establish a new life – one that includes a new job, a new home and new friends. With the focus shifted to the challenges of getting settled, planning for retirement often takes the back burner. Furthermore, the concept of retirement in Canada might not be the same as it is in their country of origin. There are programs that exist specifically to address this gap and to aid new Canadians with their long-term plans. Also, how do the specific needs of this group fit into what the Canada Pension Plan Retirement Pension offers? Let’s take a closer look at how newcomers can ensure that they have enough money for retirement when the time comes.
Exploring Canada’s Retirement Income System
In Canada, there are three sources of income that you may rely on during retirement:
- Your personal retirement savings and investments
- Government pension plans
- Employer pensions
Canada Pension Plan
The Canada Pension Plan, or CPP, provides a monthly taxable benefit to retired contributors. If you have made at least one contribution and you are at least 60 years old, then you are eligible. CPP, however, does not just start automatically when you turn 60 – you actually have to apply for it. Keep in mind, too, that you aren’t required to stop working in order to receive your CPP payments, and can wait as late as the age of 70 to begin. Depending on when you apply, your payment will either be lower or higher as it is adjusted depending on when you begin receiving payments. Obviously, if you begin receiving payments at 60, your payments will be lower. If you wait to receive them until you are 70, those payments will be significantly larger.
According to Revenue Canada, CPP amounts are adjusted every January if there are increases in the nation’s cost of living, which is measured by the Consumer Price Index (CPI). To give you a better idea of how much you’ll receive, as of March 2012, the average monthly payment received by those aged 65 was $528.92. The maximum for the time period is $986.67. Payments are deposited directly into your account on a monthly basis. And don’t worry; if you decide to go abroad, you’ll still receive your pension plan.
If You’re Lucky Enough To Have An Employer Pension
Not all places of employment set up pension plans – in fact, most don’t. Ask your employer whether or not they sponsor registered pension plans. If they do, it will be one of two types:
- Either a predetermined percentage of your salary will be set aside for when you retire;
- Or a defined contribution plan, which provides you with a pension benefit based on the accumulated contributions and investment income, can be put together.
If and when you make a contribution to these types of plans, you will receive a statement letting you know how much you have set aside.
Personal Savings and Investments
If your employer does not sponsor a pension plan, it will be left up to you to come up with one. Visit your bank or speak with a personal financial planner about your goals for retirement. Your savings and investment plans could come in the form of:
- A personal savings account
- Investments in stocks and bonds
- Registered Retirement Savings Plans (RRSP) and Registered Retirement Income Funds (RRIF)
- Tax-free Savings Accounts (TFSA)
Other assets in retirement include personal property, such as your home, or your financial or business assets. When the time comes, you may want to consider using your home as a source of retirement income.
Curious about how much you’ll have in retirement? Check out Revenue Canada’s Canadian Retirement Income Calculator. It will help you to better understand how your contributions will contribute to your financial security after you retire.
It’s never too soon. Plan now for a secure tomorrow.