Retirement Calculations – Part I

As I previously mentioned, I have determined that I need about 40% of my current income in retirement which would mean I need about $25,000/year net income in retirement for my wife and I (in today’s dollars). Now how I’m going to obtain that money from age 45 onwards is a long process, so I’m going to divide it into parts. Today is Part I – Government benefits.

The good news is getting a $25,000/year income is easier than you think. The government is going to give me a lot of money through various programs, especially if I’m in a low income bracket. Here are some of the details.

1) Canada Pension Plan

You’ve seen the deduction on every pay cheque for years and now here is the good news. You get to have it all back over a long period of time. The earliest you can collect is age 60. Since you don’t know when your going to die I suggest that most people just take the cash and accept that your going to have a pension reduction of 30%. The 30% reduction is worth it when you consider you are being paid for any addition five years.

I suggest you request a statement of your CPP contributions to date to determine where you currently are. If you take that you can plug it in to an online calculator and get an estimate of what you are going to earn. In my case I got $7094 for me and $3897 for my wife. I know that doesn’t look like a lot but combined, the $10991/year is 44% of my net income for retirement. The added tax benefit of a CPP pension is income splitting is allowed.

2) Old Age Security

I know that some ‘experts’ don’t suggest depending on OAS for your retirement calculations. I disagree. I believe that any government that tries to remove this program will be voted out so fast that it will make their heads spin, after all seniors tend to have a high voter turnout and lots of time to be interested in politics. Based on the current rates, I expect my wife and I will collect an additional $5558/year each after I we turn 65.

So that would take me up to $22,107/year combined income or 88% of my goal. Not bad for not including any RRSP or company pensions. Tomorrow I’ll cover the rest of the plan.