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Retirement savings

November 29, 2017

Your retirement income pie: CPP is just 1 slice

Government pension payments are rising, but they probably still won’t provide all the income you’ll need in retirement. So how will you fill the gap?

The Canada Pension Plan will begin phasing in contribution and payout increases in 2018, but the full benefit of those increases won’t be felt for decades. In the meantime, what does the average senior’s income look like?

According to these figures from Statistics Canada, senior families (those whose highest income-earner is age 65 or over) saw their median after-tax income steadily rise by 66.7% from 1976 to 2014, to $54,000. (Note that Statistics Canada is using constant 2014 dollars to factor in inflation and allow comparison across time in real terms.) Between 1976 and 1995, most of those gains came from increases in government transfers, including Canada Pension Plan (CPP), Old Age Security (OAS) and Guaranteed Income Supplement (GIS). But since 1995, it’s the stock market, not government programs, that has been the main source of income gains for senior families.

Filling the CPP gap

“The reality is that since 1995, seniors’ government benefit increases have been flat and seniors have had to achieve income gains by saving more for retirement and/or working longer,” says Blake Griffith,1 a Calgary-based Sun Life Financial advisor, quoting a report by Statistics Canada. The number of seniors working, either because they want to or they have to, has risen to an all-time high, he adds, citing findings in the 2016 Sun Life Retirement Now Report.

“It’s really important in your retirement planning to not think that CPP and OAS (and GIS, if your income is very low) are somehow going to meet your complete income needs,” he says. “For most people, it’s just a portion thereof.”

The maximum that new CPP recipients will receive in 2017 is $1,114.17 a month or $13,370.04 a year, which is 1.4% more than in 2016. Be aware that you may not qualify for the maximum –the average 65-year-old who started receiving a pension in July 2017 is getting just $653.27 a month ($7,839.24 a year). The amount you’ll get depends on how much and for how long you have contributed. To find out how much CPP income you can expect, you can request a copy of your Statement of Contributions from Service Canada.

  • Try this CPP/QPP calculator to estimate your CPP/QPP income and to see what factors can influence the size of your pension.

The maximum OAS payment as of October 2017 is $585.49 a month or $7,025.88 a year (it’s adjusted quarterly – in January, April, July and October). Unlike CPP, qualifying for OAS is based on residency: You need to have lived in Canada for at least 40 years after turning 18 to get the maximum payment.

Griffith suggests that you sit down with your advisor and budget how much you are going to need in retirement, and find a way to make sure you’ll have enough personal savings to fill any gaps left by government payments, so you don’t have to work in retirement unless you want to. Your advisor will help you decide how much and in what combination of registered retirement savings plans (RRSPs), tax-free savings accounts (TFSAs) or non-registered savings you’ll need to save to reach your goals.

  • CPP/QPP 38%
  • Workplace pensions or RRSPs 38%
  • Personal savings & investments 15%
  • Home equity 2%
  • Inheritance 2%
  • Other sources 6%

(Source: 2016 Sun Life Financial Retirement Now Report)

Turning your passion into income

Money isn’t the only factor when considering working after retirement: An increasing number of Canadians want to do “something” in retirement. Often, that means trying something new once they retire from full-time work.

Griffith says he advises clients to delve into their passions and hobbies and work at something they like to do, while turning it into a very useful income stream.

He gives the example of a golf-loving client who has opted to work as part of the grounds crew on a golf course. Another client loves interior decorating and now works part-time at a major furniture and décor store.

Not only are they stepping back from their more strenuous or pressure-filled full-time jobs and working at something they enjoy doing, but these clients are also bringing in some helpful cash.

“It really makes an enormous difference even bringing in $10,000 or $15,000 a year in income, because that’s $10,000 or $15,000 a year that you don’t have to draw down from your savings and that can instead grow for the future and compound with the rest of your savings,” says Griffith.

He says his best advice is to ensure you have a financial advisor who will help you adapt your plan as your circumstances change throughout your working life, so you can stay on track towards your retirement goals – and make the most of your income from every source, once you’ve retired. And after you retire, an advisor can help you find the best approach to take if you do decide to resume working, and can help you plan your legacy.

1 Blake Griffith, CFP, BAFS, Griffith & Associates Financial & Estate Planning Services Ltd., Sun Life Financial advisor.

Mutual funds offered by Sun Life Financial Investment Services (Canada) Inc.

Sun Life Assurance Company of Canada is a member of the Sun Life Financial group of companies.

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