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!