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Planning for retirement
Algonquin CollegeMay 22, 2012
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Preparing to retire
When is the right time to retire? Sources of retirement income
CAAT Pension Plan Government pensions Savings
Starting your pension
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When should I retire?
Personal readiness Career readiness Financial readiness
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How much money do I need?
Retirement plans affect your retirement income needs
Lifestyle Expense patterns Re-employment options
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How much money do I need?
Some expenses stop Employment deductions, retirement savings, work
expenses
Some new expenses start Health and related premiums
Other changes Discounts and deductions Home, mortgage, children
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What are my sources of retirement income?
Early Retirement Date
Age 65
Bridge Benefit CPP pension
CAAT Plan Pension
savingssavings
OAS pension
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The CAAT Pension Plan provides
Predictable retirement income, paid monthly For life Defined benefit pension plan – based on your
years of work and salary Earned pension not affected by volatile market
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What does the CAAT Pension Plan do for me?
Your pension builds throughout your career Join when you are hired Earn service as you work and contribute Transfer in or purchase service if you can
Watch your pension grow each year
Saving for retirement
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Pension myth
My contributions pay for most of my pension
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Value
Member retires at 60
Lifetime pension: $21,967 Bridge paid to 65: $7,036
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When am I eligible to retire?
Age 65 Normal retirement – end of the month you turn 65
Early Retirement Age 55 (with at least 2 years of service) Age 50 (with at least 20 years of service)
Reduction could apply Includes bridge benefit paid to age 65
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Pension formula
1.3% x HAPE to AYMPE x Service
+
2.0% x HAPE above AYMPE x Service
AYMPE: Average of the Year’s Maximum Pensionable Earnings for the year of retirement and 4 preceding years.HAPE: Average of your earnings
for the 60 consecutive months of pensionable service during which earnings were highest
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Bridge benefit formula
1.3% x HAPE to AYMPE x Service
+
2.0% x HAPE above AYMPE x Service
0.7% x HAPE to AYMPE x Service
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Retiring at age 65 – Cynthia’s story
• Cynthia is planning to retire at age 65
• She has worked at her college for 29 years
• Her highest average pensionable earnings are $74,000
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Cynthia’s pension calculation
Cynthia’s highest average pensionable earnings: $74,000
1.3% x $47,360 x 29 years
+
2% x $26,640* x 29 years
= Lifetime benefit from age 65 $33,306
*HAPE - AYMPE ($74,000 - $47,360 = $26,640)
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Retiring before age 65
Two kinds of early retirement pension Unreduced pension Reduced pension
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When can I retire on an unreduced pension?
85 Factor Your age + service = 85 or more
60/20 Rule You are age 60 or more and have 20 years of
service or more
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What if my pension is reduced?
Reduction is 3% for every year before earliest unreduced retirement date(0.25% / month)
Adjustment is permanent Applies to lifetime pension Applies to bridge benefit
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Retiring on a reduced pension – David’s story
David is 56 and ready to retire His highest average pensionable
earnings are $75,000 His total service in the Plan is 23
years and includes purchased service
His pension will be reduced
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Calculating the lowest reduction factor
Age 6565 - 56 = 9 years x 3% = 27%
60/20 Rule60 - 56 = 4 years x 3% = 12%
85 Factor(85-79)/2 = 3 years x 3% = 9%
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Retiring on a reduced pension
David’s pension calculation includes an adjustment of 9%
1.3% x $47,360 x 23 years
+
2% x $27,640* x 23 years
= $26,875
– early retirement adjustment (9%) ($2,419)
= Lifetime benefit from age 56 $24,456
* HAPE - AYMPE $75,000 - $47,360 = $27,640
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Retiring on a reduced pension
Because he is under 65, David will receive a bridgebenefit until he is 65. It will be adjusted by the same factoras his early reduced pension.
0.7% x $47,360 x 23 years = $7,625
– early retirement adjustment (9%) ($ 686)
= Bridge benefit paid to age 65 $6,939
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David’s pension income
David will receive $31,395 a year to age 65– $2,616.25 / month to age 65
At age 65 when the bridge ends, he will receive $24,456 / year for life
– $2,038.00 / month for life
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Pension myth
Once you hit the magic number, your pension stops growing
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Retiring before age 65
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Pensioners 2009 - 2010
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Protecting the power of your pension
Inflation adjustment is cumulative Based on Consumer Price Index New amounts added each January 1st
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Protecting the power of your pension
Service from 1992 – 2007 Service after 2007Service prior to 1992
Ad hoc Guaranteed Conditional
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Your pension lasts a lifetime
Your surviving spouse receives a pension of 60% of your pension for life. 75% survivor pension option
Survivor pension adjusted for inflation Eligible children Minimum 60 payments
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Purchasing past service and leaves
Increases your pension and lowers your early retirement reduction rate
Check to make sure any eligible purchases are done
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Plan for your needs
Plan your retirement date Retire as early as 50, as late as 71 Bridge benefit for early retirements Reduction of only 3% / year
Unreduced pension options Age + Service = 85 Age 60 with 20 years of service Age 65
Select survivor benefit of 60% or 75%
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What are my sources of retirement income?
Early Retirement Date
Age 65
Bridge Benefit CPP pension
CAAT Plan Pension
savingssavings
OAS pension
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Government pensions – CPP
Maximum pension: $11,840 ($986.67 / month) Start as early as age 60
Reduction applies
Start at age 65 with no reduction
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Government Pensions – CPP
Apply for CPP 6 months before you want the payments to start Get an estimate Child Rearing Provision
To apply contact “Service Canada” Payments made in the LAST 3 business days
of the month
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CPP Changes starting 2012
Reduction increases to 0.6%/month by 2016 Start CPP without any work interruption Age 60 and under 65: can collect CPP on
reduced basis, but must continue to contribute if working
Age 65+ can collect CPP while working and have the option of continuing to contribute and build more benefit
Drop more years with low or $0 earnings
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Government Pensions – OAS
Maximum OAS: $6,481.44 ($540.12 / month)Starts at age 65 “Claw back” applied to higher income
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Collecting government pensions
Apply for CPP and OAS separately Government pensions are paid in the last 3
business days of each month
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Pension myth
It takes 35 years of pension plan service to replace 70% of my income in retirement.
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Income replacement – Cynthia
Pre retirement income
CAAT Pension
CPP
$74,000
$33,306
$6,481
$11,840
OAS
Retirement income
= $51,627
70% of pre retirement income + personal savings
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What are my sources of retirement income?
Early Retirement Date
Age 65
Bridge Benefit CPP pension
CAAT Plan Pension
savingssavings
OAS pension
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Your savings – RRSPs
Tax sheltered savings now to enhance your income in retirement– Contributions are tax-sheltered– Contribute each year with “earned income”– Contribution amount based on your income– Carry forward unused contribution room– Payouts are taxable
Pension Adjustment affects RRSP room
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Your savings – Tax Free Savings Accounts
Save up to $5,000 a year and don’t pay taxes on earnings
Any individual over age 18 can contribute Earnings are tax sheltered Withdraw funds at any time Payouts are not taxable
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Income splitting
Allocate up to 50% of pension income to lower-earning spouse
Split your income at tax time
Reassess each year
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When you’re ready, submit your paperwork
Marriage breakdown Plan needs complete details of any pension
division
Incomplete marriage breakdown paperwork is #1 reason for a delay in the first payment
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When you’re ready to retire – consider
Estate planning Your beneficiary designation and spouse
information is up to date Review your insurance needs and will
Health insurance Review your choices carefully You make your choice at retirement Consult with your HR department for details
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Collecting your pension is effortless
Paid by direct deposit on 1st business day of the month
Pension + bridge are combined into one deposit
Payments are made in Canadian funds Outside Canada, can receive a mailed cheque
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Stay connected
We send Newsletters, handbooks Bridge benefit reminder Indexation info T4A Regular survey
Keep in touch if … You move Your spouse or beneficiary info changes
