Determining Your Retirement Income

You’ll soon be heading into retirement.  You’ve done some soul-searching to discover what kind of lifestyle you are excited to retire to.  Then you calculated roughly how much this is going to cost you.  Can you afford it?

Now is the time to start getting practical and review all the sources of income you can expect to receive.

Consider your resources

First is your guaranteed income which includes payments from CPP/QPP and OAS as well as work-place pension plans.  The closer you are to retirement, the more accurate the estimates will be.

If you haven’t already done so, open a My Service Canada account.  Here you can see your Statement of CPP Contributions and approximately what your monthly benefit will be at different retirement dates.

You will qualify for full OAS benefits if you have lived in Canada your entire life.  If not, check for your eligibility.

If you are enrolled in a workplace pension plan, take a look at your statements for an estimate of the pension amount you can expect.  If it’s a Defined Benefit Plan, ask for a copy of the rules used for the calculation.  A Defined Contribution Plan will only give you an estimate based on projected investment returns.

Subtract your guaranteed income from the proposed expenses in your budget.  You’ll want enough to pay your basic expenses with some money left over for fun stuff.  For many people, guaranteed income will be insufficient.  If you have a shortfall, you will need to draw from your RRSPs, TFSAs and other savings.

Will your savings be enough?

Once you have settled on an annual withdrawal amount you will need to determine whether you have enough savings to last your lifetime.

You can find any number of online calculators that will help you, such as this How Long Will My Money Last calculator. 

Be careful with the assumptions you use for returns and inflation.  Calculators assume the same rates every year. While inflation has tended to be quite stable recently, we know in reality that investment returns can fluctuate widely from year to year.


Making adjustments

Chances are you will need to reconsider your plans and make a few adjustments to make your budget work for you.

Ideally, the basic necessities will be covered by your guaranteed income.

Be mindful of what you will be spending. If it looks like you may be withdrawing too much from your savings too soon revise your plan.

You don’t have to completely give up your fun activities.  See if you can modify your basics so you’ll have more to spend on travel, hobbies, or other entertainment.  Maybe you can make do with just one car or move to a smaller home.  You’ll probably have more time to comparison shop for your purchases and do house- and yard-work yourself instead of paying someone else to do it.

What could you discard if you had to?  You don’t want to go completely minimalist, but you likely can accept less than the full-meal deal.  You might eat out less frequently or not be so lavish when you entertain.  How about taking a big trip every two or three years instead of every year?

The bottom line

When you retire your income will come from a combination of government pensions, employer pensions, and your own portfolio.  You want to be able to provide a reliable, steady income that will meet your needs.

If your number crunching suggests you haven’t saved enough to meet your retirement income goal, you need to revise your retirement plan.

You could choose to work longer so you can save more, work part-time in retirement, or lower income expectations.



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