5 great tools for planning your retirement

For a few weeks now, I’ve been stressing the importance of saving early for retirement. I hope the idea is making headway. Now it’s time for you to take the next step and start planning. Below are 5 key tools to help you build a financial plan for retirement.

1. Your Statement of Participation and statement of benefits 
These statements show you the contributions you made to a retirement savings plan along with the amounts you could receive when you retire. Whether it’s the Statement of Participation under the Québec Pension Plan or the statement from your pension plan, be sure to read them carefully.

2. Calculation tools 
Retraite Québec offers 3 tools to take the worry out of planning. If you’re 45 or over, CompuPension is the right one for you. It lets you simulate your retirement income to get a pretty accurate picture of your financial situation in retirement. The tool uses the information in your file under the Québec Pension plan to evaluate the amount you could receive under public and private plans and from your personal savings. So that we can authenticate your identity, you need to know your clicSÉQUR user ID or create a clicSÉQUR account. This also lets you use all our online services.

If CompuPension is more tool than you need, try its little brother, SimulR. This tool, which anyone can use, takes only 5 minutes of your time and provides a simpler way to simulate your retirement income. While it doesn’t provide as comprehensive a picture as CompuPension, it does consider amounts under public and private plans and from your personal savings. It’s designed to tell you whether your financial planning is on the right track. You don’t need a clicSÉQUR ID to use SimulR.

Are you a member of a public-sector pension plan? Use the Pension Estimator to estimate the amount of the pension you’ll receive on the date you plan to retire.

3. RRSP and VRSP calculators 
Interactive tools provide a great demonstration of why you should save early. They also help you understand what retirement income your investments in a registered retirement savings plan (RRSP) or voluntary retirement savings plan (VRSP) will provide.

You can find calculators everywhere online, but some are better than others. For RRSPs, try this calculator from Question Retraite (French only), and for VRSPs, try our VRSP Calculator.

4. The Web 
Once you’ve finished reading this, look online! The Web is full of articles, videos and blogs that provide basic financial planning advice. It’s always a good idea to consult as many sources as possible. Just make sure those sources are objective.

Allow me to make a few suggestions. The Web sites of Question Retraite and flash RetirementQuébec compile information from a number of public and private sector partners. In addition to retirement information, the Autorité des marchés financiers (AMF) Web site provides information on investments, insurance and more. The AMF also provides online financial advice directed at youth. Lastly, the Web site of the Institut québécois de planification financière provides a range of information, including how to find a financial planner.

5. A financial planner 
No, you can’t pack a planner in your suitcase or consult a planner online. However, a financial planner is probably your best resource for planning your retirement. This professional will help you determine the best savings strategies based on your investor profile. And no online tool can replace such personalized advice.

There is one caveat: your financial planner must hold a diploma from the Institut québécois de planification financière. Also check with the Autorité des marchés financiers (AMF) to verify that the planner is authorized to practise.

And if you know about any other useful tools, feel free to share them with us!

Busting retirement planning myths

One of the dangers with retirement planning is bad advice. This is true for most things, but it is especially true when it comes to your financial security. If you start off right, you’ll save yourself a world of trouble.

Myth 1: The Québec Pension Plan will no longer be there when I retire. 

I can understand why you might have thought that after the market crashed in 2008, but let me reassure you that the Québec Pension Plan is here to stay.

According to the last actuarial valuation as at 31 December 2012, the Plan is in good shape. Here’s another reassuring fact: the Plan’s reserve is over 57 billion $.

Regular actuarial valuations enable Retraite Québec’s actuaries to closely monitor the Plan’s financial situation and account for demographic and economic changes. In fact, our actuaries are working on a new plan valuation right now, to be released in 2016.

In addition, under the Act respecting the Québec Pension Plan, a public consultation must be held at least every 6 years. This provides an opportunity to discuss how best to ensure stable, sustainable Plan funding.

For 50 years, the plan has offered Quebeckers financial protection in the event of retirement, death or disability.

Myth 2: A registered retirement savings plan (RRSP) is the best way to save on tax. 

I sometimes get the impression that people forget how an RRSP actually works. It’s relatively simple. When you contribute to an RRSP, you reduce your taxable income by the amount you contribute. Since your income is less, you pay less tax on it.

What’s more, the amounts in an RRSP grow tax-free for as long as they stay in the RRSP. If you withdraw those amounts, remember that you must generally pay tax on them.

I say “generally” because your income in retirement is often less than when you were working. However, each dollar withdrawn from your RRSP may still be taxed like regular earnings. So, yes, your RRSP can help you save tax NOW, but it can’t help you indefinitely.

Myth 3: I could have made more taking the amounts in my pension fund and in the Québec Pension Plan and investing them myself. 

 Here’s an unfortunate reality: people without a group retirement savings plan tend to save much less. Though some may say that they need every cent they can get, the truth is generally that it is very hard to save and very easy to spend.

Contributing to a pension fund and the Québec Pension Plan forces you to save regularly. And since most employers also make contributions on your behalf, your savings grow faster. In addition, this savings approach (because amounts saved under a pension plan do count as savings):

• delivers a positive real return for all contributors 
• mitigates the longevity risk (the risk that you will outlive your savings) 
• protects against inflation since benefits under the Plan are indexed annually 
• offers preferential management fees. 

So consider these 3 retirement myths busted (although there are many more lurking out there). Since I’m not a financial planner, I can’t give you advice on saving. But I can tell you this: Get informed! Read all you can, ask questions and meet with a specialist. It can make all the difference.

3 retirement planning traps to avoid

RRSP season is in full swing, and many of us are using it to budget for retirement. You make your calculations, contribute to an RRSP and presto!, it’s all taken care of. If only it were so simple…

When to comes to retirement planning, most of us are just a bit lazy. We seem to think that rough estimates and wishful thinking will get us there safely. That’s almost never the case. Here are 3 traps to avoid when planning your retirement.

1. Not considering the age at which you can start receiving a retirement benefit.
   If I asked you the age at which you want to retire, I bet you wouldn’t know what sources of income are available at that age. And yet this is information you need to know!
   
   Most Quebeckers plan to retire between ages 60 and 65. Did you know that you can receive a retirement pension under the Québec Pension Plan (QPP) during that time but that the rest of your income has to come from a private pension plan and your personal savings?
   
   That’s something you need to consider! First, because your decision is permanent. And second, because the earlier you start drawing amounts from a pension plan (whether the QPP or a private plan), the smaller your pension will generally be. Don’t forget that these amounts, along with your personal savings, need to be enough to maintain your standard of living until your death.
    
2. Overestimating your benefits under a public plan.
   The QPP replaces around 25% of the income on which you contributed. I can picture some of you running the numbers in your head: If I earn 60 000 $, this should give me around 15 000 $ a year. WRONG!
   
   Why? Because there is a contribution limit on your earnings. In 2016, you cannot contribute on any earnings over 54 900 $. That means the maximum retirement pension payable at age 65 is around 13 000 $. In addition, it is unlikely that you’ll have contributed your whole life on maximum earnings. And since most people plan to retire BEFORE age 65, your pension could be reduced by up to 36% of the amount you expect to receive at age 65. So if you retire at age 60, your pension would be less than 8 400 $ a year.
   
   And what about the federal Old Age Security program? The basic amount is around 6 800 $ per person. There’s also the Guaranteed Income Supplement (GIS), but you’re only eligible for it if your family income is than 42 000 $.
    
3. Thinking you have your whole life to save.
   You hear it over and over: it pays to start saving early. And if you’re tired of hearing the same old tune, it still rings true. You need to start saving for retirement as early as possible for two reasons.
   
   One, because the earlier you start saving, the more compound interest works to grow your capital. Second (and we often forget this), life is full of unexpected surprises. Think about it. You need a retirement savings cushion if you have to retire earlier than expected for health or other reasons. Starting to save early also helps you make up for years when circumstances prevent you from saving (for example, you lose your job). 

So if you’re going to plan, do it right! Our SimulR tool can help by giving you a fast and simple way to simulate your retirement income. And remember all the planning traps when you crunch the numbers!

Five good reasons to start saving for retirement early

I’ve decided to give you yet another reminder about how important it is to start saving for retirement early. Why? Because it pays off in the long run! If you’re a new reader—or if you haven’t yet got the message—read on to learn more.

For the skeptics out there, here are 5 good reasons to start saving early.

1. It’s easier.
   If you start saving early, you don’t have to put as much aside each month. It’s the magic of compounding in action. For example, let’s say you start contributing 100 $ a month to an RRSP at age 25 and earn 3% on your contributions. At age 60, you’ll have saved up 3 times more than if you had started contributing at age 45. To save the same amount from age 45, you’ll need to stash away 325 $ a month.
    
2. You can use your retirement savings for leverage.
   Purists won’t like me telling you this. But I’ll tell you anyway. The money you save for retirement belongs to you, and you can use it…intelligently.
   
   If you contributed to an RRSP, for example, you can use the amounts in it to buy your first home under the Home Buyers’ Plan (HBP) or go back to school under the Lifelong Learning Plan (LLP). There’s nothing wrong with using your savings under those plans, provided you repay the amounts you use. And of course, the earlier you start saving, the more money you’ll have at your disposal.
    
3. It can make phased retirement a reality.
   When you start saving young, you increase your retirement options, including phased retirement. Your savings can provide a nice financial cushion and take a big load off your mind.
    
4. People who save have less debt.
   This might seem obvious, but think about it. Someone who starts saving early is more likely to watch their budget and finances. Without being a penny-pincher, you soon understand the value of money and think twice before making any unnecessary purchases.
    
5. It’s rewarding to save!
   Who doesn’t like to see their RRSP account increase year after year? Even if you haven’t socked away a fortune, it’s still money you worked hard to save. And while your electronic gadgets and other doodads depreciate and are nearly obsolete once you leave the store, your savings will continue to increase in value and eventually give you the best present ever: a comfortable retirement.

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