Roadmap to Retirement
Hello All,
As we approach the deadline to contribute to RRSPs which is February 29th , I thought it would be useful to look at the potential sources that might contribute to your retirement income. For many of us, retirement seems like a long way off and consequently we perhaps don’t spend enough time thinking about it until it’s too late to make much of a meaningful change.
In my last newsletter article about RRSPs (around this time last year), I highlighted how 5,000 per year over 30 years i.e. a total investment of $150,000 invested at 5% (which is lower than the average return on the stock market) would result in $338,899.11 at the end of 30 years. This applies to all types of investments and is essentially the power of compounding which is a function of the rate of return and time i.e. the number of years the investment is earning the return. This demonstrates that contributing, even small amounts, as early as is possible, can lead to a significant nest egg.
So, let’s look at the most popular sources of retirement income for Canadians (both employees and self employed):
Old Age Security (OAS) which is a monthly stipend paid to all Canadians at approximately the same rate. Currently this is about $700 per month. Note that above a certain amount of income, this is clawed back.
Canada (Quebec) Pension Plan (CPP/QPP) is also a monthly payment which is linked to how much you have contributed. (contributions come from your salary or self employed income). The maximum amount you could receive as of 2024 is $1,364
Registered Retirement Savings Plan (RRSP) is entirely dependent on what you contribute (contributions are deductible from your taxes. Withdrawals are then taxable). There is a minimum withdrawal amount once you turn 71 that starts at about 5% and progressively increases.
Tax Free Registered Savings (TFSA) can be withdrawn tax free anytime.
Employer Pension Plan (RPP) is usually applicable to employees who work for the government as well as some businesses in the private sector.
Corporate Investment Portfolios for those who are owners of corporations and have set up investment portfolios for their excess earnings
Other Personal Assets/Savings including home equity, especially if you expect to move after retirement and non registered savings/investment account.
No matter what stage of life you are in, it is useful exercise to estimate how much you might need to retire. There are a variety of retirement calculators out there. This one from Revenue Canada is quite thorough. I also like this one from Wealthsimple. Note that like with all estimates, it doesn’t have to be exact. But most of us can extrapolate our future expenses based on our current lifestyles.
And while it is evident that the earlier you start, the more you will be able to accumulate, it is never too late to start putting a plan into place to ensure that retirement is actually something you look forward to rather than a source of stress.
QuickBooks Tutorials:
My latest QBO tutorials on YouTube:
Lesser known features of bank feeds One the best features in QuickBooks Online is the ability to download bank and credit card transactions which dramatically reduces the amount of time required for data entry. This tutorial looks at all the additional features available in the banking download feeds interface which can help you save even more time and streamline the process dramatically.
Difference between Zero rated, exempt and Out of Scope: A response to a question that I get frequently. While it doesn’t matter too too much since they all result in $0 in GST/HST and QST, it is useful to know the difference.
