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Retirement Planning

Will You Retire in Comfort?

Where will your retirement income come from? The three most common sources are: government sponsored plans; company pension plans; and your personal savings.

The two main government sponsored programs designed to supplement your retirement income are Old Age Security (OAS) and the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP).

Government Sources
Assuming you qualify for the maximum payments in 2009, these programs combined provide an annual income of approximately $17109. Although OAS begins at age 65, CPP can begin as early as age 60 with the benefit reduced by 1/2 percent per month you are under age 65 at the time your payments begin.

Company Pension Plans
Only 42 per cent of working Canadians belong to a company pension plan. If you are fortunate enough to be employed by a company that offers the richest defined benefit plan, after 35 years of service, you may be able to look forward to an annual pension of almost 70 percent of your pre-retirement earnings. The maximum pension payable from a defined benefit pension plan in Canada of $70,000 is reached at a salary level of about $100,000. At this level, an executive earning $200,000 can only replace approximately 50 percent of his earnings.

Personal Savings
One of the most effective ways of saving for retirement is through a Registered Retirement Savings Plan (RRSP). An RRSP is a personal "pension” plan you fund yourself. RRSP contributions are tax deductible and the funds inside the plan grow on a tax deferred basis. Comparing an annual $5,000 contribution into an RRSP and a $5,000 non-RRSP investment. Assuming a 46 percent tax bracket and an eight percent return per year, after 25 years the RRSP is worth over $272,000 more. Even if you cashed out the RRSP at the end of year 25 and paid 46 percent tax on the entire amount, you would still have over $90,600 more than what you would have saved outside an RRSP.

Take control of your retirement! A savings program that includes an RRSP can help make your retirement more comfortable.

For more information about Retirement Planning please refer to the following articles: