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How does retirement work?


Leaving the labour force

This is how retirement works, you have reached the age to leave the labor force and will no longer be working.  Some people have a hard time with this and wonder what they are going to do with this extra time, where as others have no problem filling the extra time.

Most people will retire from employment at the age of 65 and in this day and age will live for another 20 – 30 years.  There are often feelings of great excitement when reaching the age of retirement, but then the question most people ask themselves is “Did I prepare and save enough for retirement?”

Retirement Income

Retirement Income can be a Pension Plan through your employment, Canada Pension, Old Age Security, Social Security, 401K, Retirement Savings Plans, Tax Free Savings Accounts etc. because I am more familair with the Canadian Pensions I will refer to them.

The sad fact is the many people are entering retirement age with inadequet retirement funds, this is leaving them with having to find post retirement income to supplement what pensions they are receiving.

In 2016 in Canada it is estimated that approximately 50 percent fo couples between 55 – 65 have no employer pension plans and of that 50 percent about a 1/3 of them have not saved enough to supplement their government pensions.

This tells me that many people retiring in the coming years will be living in poverty levels or forced to find additional sources of income.

Canadian Pension Plan and Old Age Pension

The Canadian Pension Plan pays out a maximum of $12,780 a year for retirees, but very few people qualify for the maximum payment.  In 2015 the average CPP received for a man in Canada was $7,600 and a women was $5,900.  These people are also able to collect a maximum of $6,830 in Old Age Pension (OAP) if they are 65 years of age or older.

Looking at these figures on average in 2015 a single man collecting the average CPP and OAS would have an income of $14,430 and a women would have an average income of $12,730

For a retired couple their combined income of $27,160 is just barely over the poverty rate of $24,954 (figure from 2014) and a single retired person with the average government income of $14,430 for a man or $12,730 for a women is way below ther poverty rate from 2014 of $17,824.

Retirement Savings Plans

Saving for Retirement when you don’t have an employer plan is one way a person can save for their own retirement income but statistics show that 60 percent of people that have actively been contributing to their RRSP plans have barely enough to cover the first couple of years of retirement.

The average total RRSP balance in 2015 was $70,000 and with record low interest rates these funds are not increasing in value like they did for our parents, leaving us to contribute more.  The average Canadian couple can live comfortably on $40,000 to $70,000 a year that is not facturing in a morgage.  For a single person that income would be between $30,000 and $50,000.

The remaining 40 percents or Canadians do not have plans at all, probably due to low income or raising families, medical cost that have just not allowed them extra money to invest.

These figures don’t look to good for the people without a employer plan.  This is why were are seeing more and more retired people continuing to work or finding part time work.

Tax Free Savings Accounts

The Goverment of Canada introduced this savings plan back in 2009.  It was created to help Canadians save money without having to pay taxes on the interest earned on these savings.

The contribution limit for 2009, 2010, 2011 and 2012 was $5,000 per person per year.

It was increased to $5,500 for 2013 and 2014 and then to $10,000 in 2015.

In 2016 it was reduced to $5,500 again.

By the end of 2016 a person could potentially have $46,500 in their tax free savings account.

Stocks, Bonds and Savings

Other ways to save for retirement is through Stocks, Bonds and Savings Plans.

If you have a family home, selling it and moving to a smaller home is another way to generate retirement income.

It seems more important today when planing for your retirement to have a balance of savings, a retirement plan, stocks and bonds.

Many people will have to supplement their pensions in other ways.  We will look at some ways to do that some examples would be:

  • Working at home
  • Selling at Farmer’s Markets
  • Affiliate Marketing
  • Write for others
  • Be a tour guide
  • Perform tasks for others
  • direct selling (ebay)
  • be an independent business owner
  • be a mystery shopper
  • rent a room out in your home

These are just some ideas.  We will explore these as well as look at all other things related to retirement.

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  1. Yes! I also don’t have any benefit or pension plan with my employer – so I’m starting to realize how I need to start saving for my retirement … because I just can’t see myself living from the little bit of Canada and Old Age Pension.

    I’ve recently set up some investments in Mutual Funds, and in a Tax Free Savings Account…. It’s a little risky for me, but the investor assured me that if I leave it in for the long run – it will eventually grow significantly.

    Thanks for the information!

    • Mutual Funds can seem a little risky, they range for high to low risk.  We feel more comfortable with ours in lower risk investments….I’ll be adding more information to the site as it grows.  Thanks for stopping by.

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