So maybe you’ve been neglecting your RRSP savings, but you’re not worried. You’ve been paying into CPP for years, so you’ve got a guaranteed income for your retirement, right? And you’re a homeowner. You can just sell your home and use that to fund your retirement, right?
It is precisely these kinds of retirement assumptions that can cause retirees to see a shortfall in their retirement funds and having to rely on debt to make ends meet.
“The only retirement assumptions that you should make is that you need to anticipate what your retirement will look like and what your expenses will be and plan for them,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
You need to be able to identify potential income shortfall and fill in the gaps with your own savings. Here are some problems with common retirement assumptions.
Do the math for the CPP
While chances are you’ve been paying into CPP and will be eligible for support in retirement, do you know how much you’ll actually get? And how does that figure into supporting your quality of life? Remember that the amount of CPP and OAS is capped, so count on your payment being lower than what you’ll realistically need to pay for living expenses.
For example, in 2017, the maximum payable amount is $1114.17, but on average an individual receives $685.11.
It’s best to rely on CPP and OAS as a means to adding to your retirement funds, but not for your main source of income.
Using your home as your main retirement fund
While no question, owning a home is a great way to accumulate wealth, using it as the sole means to fund your retirement is a risky proposition. For one thing, the funds that you’ve got in your home are locked up in home equity, meaning that you’ll need to sell your home to access them; you still need a place to live.
“If you need to sell your home because you need cash in a hurry, you are completely at the mercy of the market. There are a number of variables at play at any given point in time, like the economy, interest rates, even buyer taste for size and type of housing. You could be backing yourself into a corner and get less money than you’d expected for your home, which means that your retirement fund won’t go as far or as for long as you’d planned,” says Schwartz.
If you haven’t already been contributing regularly to retirement savings, the time to start is today- literally. Investigate RRSPs and TFSAs and see what makes most sense for your savings strategy.
It’s a good idea to do your savings monthly with an automatic withdrawal taken right from your account. This is a seamless habit which will make it easier to grow your savings.
Avoid the temptation to withdraw from your RRSP for “impulsive” buys (i.e. like furniture, vacations, etc.). Although it is better to use cash instead of credit, it will take you awhile to get back on track with your retirement funds, and you’ll pay tax on it too.
Have some other cash savings on hand to cover those kinds of costs.
Are you trying to pay down your debt so that you can properly prepare for retirement? Get your payment strategy started today. We can help you develop a plan. Call one of our trained credit counsellors at or visit our online debt analysis.