Employees, meet the VRSP!

You receive a notice from your employer when you arrive at work on Monday morning. You find out that a voluntary retirement savings plan (VRSP) will soon be offered to you and other eligible employees at your workplace.

That’s great news! But what does that mean for you? Let’s have a closer look at VRSPs.

So why set up a retirement savings plan at work?

A fair number of businesses offer their employees a group retirement plan, commonly known as a pension fund. There are several types, such as the defined contribution plan, the defined benefit plan, the simplified pension plan. And I could go on.

These plans make it possible for you to set sums aside for retirement by way of payroll deductions. By doing so, your savings pay off on every level: your contributions are tax deductible (short-term advantages) and you set aside amounts regularly for your future (long-term advantages). Let’s face it, it is much easier to save before the money falls into our hands.

Even today, not all workers have the opportunity to have savings deducted from their payroll through an employer-offered pension plan. Based the number of employees affected by the Voluntary Retirement Savings Plans Act, businesses that do not offer a plan are required, or will be required, to implement a VRSP or another group retirement savings plan that meets certain conditions. Since 31 December 2016, businesses with 20 or more employees must meet the requirements of the Act. Now, businesses with 10 or more employees are required to implement a plan by 31 December 2017.

For employers, implementing a VRSP is a simple way to ensure that they are in conformity with the law. It is also an efficient and advantageous method of saving for you!

Don’t miss the boat with VRSPs

Everyone agrees that, in addition to the Québec Pension Plan and the Old Age Security pension, savings are essential to ensure a comfortable standard of living in retirement. It is of the utmost importance to sit down and plan for retirement properly. Focus on a savings method that is best adapted to your personal situation, and one that will allow you to put money aside without compromising the standard of living you enjoy today. It is possible. The sooner you start saving, the bigger the amount will be when you retire, thanks to all the interest that you will accumulate over the years.

The VRSP is now an option. If ever you are offered a VRSP, evaluate your situation and use it to your advantage to better prepare for retirement.

As its name suggests, the VRSP is voluntary. If you are an employee who qualifies, under certain conditions, you can choose the type of deduction (fixed or percentage), or whether to increase or decrease your contribution rate. You can also choose to end or suspend your plan participation. Once you have received a notice of participation in the VRSP from the plan administrator, your employer will automatically register you, unless you notify him or her otherwise. Your contributions, determined according to a default rate, will be deducted directly from your pay. The default contribution rate will be 2% until 31 December 2017, and increase to 3% in 2018.

Your employer can also make voluntary contributions to the VRSP. Should that happen, it’s good news for you! It’s a great way to improve working conditions, and gives you all the more reason to register. Should you employer choose not to contribute, don’t worry. Your savings in the plan can significantly improve your standard of living when you retire. For a clearer idea, get an estimate by using our VRSP Calculator.

To find out more, the Retraite Québec website provides a wealth of valuable information on VRSPs. Check it out at www.retraitequebec.gouv.qc.ca/vrsp.

Retirement strategies for couples

You had until 1 May 2017 to file your 2016 income tax returns. It wasn’t very exciting, was it? But it might be worth considering a few ways of reducing your taxes when you retire. The advice I am giving you may help you in the future, especially if you are about to retire, or if you have recently retired, like my two friends, Hélène and Jean.

Couples should familiarize themselves with the ABCs of the federal and provincial tax system so they can choose the best tax strategy. To get a clearer picture, consult the capsule entitled Life as a Couple: Using the Tax System to Your Advantage by Flash Retirement, one of Retraite Québec’s partners.

The capsule explains that the system is made up of tax brackets: tax rates vary based on income, with the first $11 635 not being subject to tax. For example, for an annual income of $12 000, only the amount exceeding $365 is taxable.

The taxation system makes it possible for couples to reduce the amount of their taxes. The idea is to balance the income of both spouses so that they end up paying less tax, especially when their individual incomes differ greatly: they would pay less tax on two incomes of $25 000 than they would on one of $50 000.

One of the most common strategies for reducing income tax is to contribute to an RRSP for the spouse with the lower income.

If you are receiving a retirement pension under the Québec Pension Plan, you and your spouse can also reduce the amount of your income taxes by sharing your retirement pension.

Some conditions apply, but the good news is that it isn’t necessary for both of you to have contributed to the Plan, provided you are both over age 60. De facto spouses can also file an application with Retraite Québec and enjoy the benefits of pension sharing.

Other tax measures, such as pension income splitting at the federal level, could apply to your situation. Visit the Canada Revenue Agency and the Revenu Québec websites for further information.

You now likely better understand why many people use the various tax strategies available to them. The tax system not only benefits your couple by providing ways of reducing your income taxes, but also allows you to be more financially independent.

Take the time to…

When ringing in the New Year, many of us made resolutions to eat better, do more exercise, or spend more time with our children. Chances are, however, that few of us resolved to better plan for retirement, even though today’s effort will bear fruit in years to come. So why not challenge yourself and take a little time to plan for retirement.

Learn more

Financial literacy is a hot topic. But, really, what is it? Financial literacy is a sort of accumulated knowledge on financial matters that allows us to make informed choices concerning things like our budget and retirement planning.

However, several studies have shown that, in Québec, financial literacy needs improving. Is that a problem? Well, of course it is! It is essential to understand the basics to be well prepared for retirement. Indexation, interest rates, and inflation are not just words used by actuaries, stock brokers and traders.

Taking the time to learn more can have an effect on your finances. Visit sites such as the Autorité des marchés financiers (AMF) or consult a financial planner. When you understand the basics, you will see why it is important to plan for your retirement and, above all, why you should start as early as possible. 

Do the math

A recent Retraite Québec survey showed that half of workers claim to have calculated or to have had someone calculate what they need to save for retirement. That’s a good start, but why just half? Why hasn’t everyone?

I suppose several of you are telling yourselves that you don’t have money to invest anyway, you know more or less what you need to save, retirement is dull and boring, and that it doesn’t matter because you always have your pension fund.

Some food for thought:

1. No matter what, retirement is on its way. Even if you bury your head in the sand to try to avoid finding out how much you need to save, you are only delaying the problem. By acting today, you will be giving yourself some peace of mind.
2. Of course planning for retirement is boring! So are cleaning, doing the groceries, and helping your children with their homework… But it’s a necessary evil. At least planning doesn’t have to be done every week!
3. Even if you are already saving, be sure to do the math. Have you ever considered that you could be saving too much for retirement? Yes, it’s possible!

So what are you waiting for? Take a few minutes and try SimulR, our retirement income simulator tool. You’re just a click away!

Set money aside

Don’t stop after crunching the numbers! There is a crucial step remaining: saving. Make an appointment with your financial institution today and choose a savings vehicle that best suits you.

Retirement: life goes on…

The numbers shows that most people’s definition of retirement no longer means completely stopping work. Is that a good or bad thing? Actually, it’s neither. It is surprising, however, that it has taken so long for people to catch on to the fact that retirement doesn’t mean the same thing for everyone.

According to Retraite Québec’s Sondage 2016 sur la sensibilisation à l’autonomie financière de la retraite (French only), which surveyed workers aged 35 to 49:

• 59% of workers want to retire progressively; 
• 18% of workers would prefer to change jobs rather than retire; 
• 22% of workers (less than a quarter) expect to fully retire.

The survey also showed that more than half of workers expect to retire at age 65 or over.

These results go hand in hand with several social phenomena, such as an increasing life expectancy and the fact that workers enter the labour force at a later age. But could this also be related to the fact that we are afraid of retirement?

Let’s be honest. The image we have of retirement is not very realistic. Take, for example, plans of spending a year on a yacht in the tropics, or travelling around the world. When we take a few minutes and do the calculation, we realize that such projects are costly. Sadly, very few people can make those dreams come true.

Even though doing the math can sometimes be a slap in the face, it at least makes us think about what we can really afford to do when we retire. And sometimes, finding something to fill up all that free time is precisely what stresses us out. Then, we really see how expensive life is.

What is the best remedy for your retirement blues? There is only one: be smart when you prepare for retirement. Plan affordable, realistic projects that you can offer yourself. Don’t expect to do what you can’t do right now, otherwise you’ll be telling yourself fibs. Don’t forget that retirement is a part of life.