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 However, each dollar withdrawn from your RRSP may still be taxed like regular earnings.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.