Financial: How's Your Retirement Income Plan?

As a working person, it's usually pretty easy to figure out where your income is coming from – and you often don't have a lot of say in the matter. As a salaried employee, you get a cheque or a direct deposit into your bank account … simple.

But when you retire, your income derives from a variety of sources that can be hard to get a handle on. And now you find that you have some important choices to make which can have a strong impact on the regularity and amount of your income, and the taxes you pay. That's why having a retirement income plan is a good idea – so here is some basic info and tips to get you started.

Most Canadians will receive retirement income from a combination of four sources:

1. Government Pensions

As part of our country's social benefits system, guaranteed retirement benefits are available to all eligible Canadians.

The Canada/Quebec Pension Plan (CPP/QPP ) each provide taxable benefits to Canadians who have contributed to the plans (based on your level of contributions over the years).
Old Age Security (OAS) is a basic taxable benefit paid to all eligible Canadian citizens, age 65 or older.
Guaranteed Income Supplement (GIS) is an additional non-taxable benefit available to low-income OAS recipients.

2. Workplace Pension Plans

Many Canadians work for companies that provide a registered pension plan. Most employer-sponsored plans fall into these two categories:

Defined Benefits (DB) Plans have been the most common and guarantee a certain level of pension income based on a pre-established formula that typically includes the number of years you were employed by the company and your salary.
Defined Contribution (DC) Plans define your contributions and the employer contributions to the plan (if any), but not your pension income. At retirement, you may have the option of purchasing a life annuity, Locked-in Retirement Account (LIRA), a Life Income Fund (LIF) or other registered retirement vehicle, depending on the pension legislation that applies to the Plan.

3. Registered Retirement Savings Plans (RRSPs)

An RRSP is among the best tax-saving, income-building strategies for most Canadians. You should get the most out of your own RRSP by always contributing the allowable maximum to it each year and giving it the opportunity to grow on a tax-deferred basis for as long as possible.

4. Other Personal Assets

Income from your other personal assets can be used to top up your retirement income. This can come from a balanced portfolio of non-registered investments - such as stocks, bonds or mutual funds - that provide regular interest earnings and/or dividends, a home equity loan/reverse mortgage, income from a rental property, or even part-time employment.

By planning now and using the right combination of strategies, you can pay less tax on your retirement income and avoid "clawbacks".

A professional advisor can help make your plan work for you. (Submitted by Damon Smith, Investors Group Financial Services Inc.) For more information call 1.888.335.1362.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.

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