Where will your income come from when you retire?

Your retirement income will generally come from three main sources:

• Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
• Old Age Security (OAS)
• Employer-sponsored retirement plans, personal savings and investments

Your retirement savings and investments can come from sources such as:

• Registered Retirement Savings Plans (RRSP)
• A Tax-Free Savings Account (TFSA)
• Real estate
• Employer pension plan
• Investments and unregistered savings accounts

You’ll need to know how much you can earn from these sources to plan for your retirement. You will also need to think about what to do with your personal savings during certain stages of life.

You should start thinking about all this before you retire. This will help you determine when you can comfortably retire and how much money you can afford to retire.

Talk to a financial or investment professional to learn more about your options and what’s most appropriate for your financial situation when you retire.

Conversion of your RRSP or lump sum benefit from a pension plan

Generally, you will need to convert your RRSP into a form of income at the end of the year you turn age 71.

Your options generally include:

• Purchase of a pension
• Transfer your RRSP to a Registered Retirement Annuity Fund (RRIF)
• single withdrawal

What should be taken into account when planning your sources of income?

There are many things to consider when deciding how to make the most of your retirement savings.

• When you will want or need income

When and how much you’ll need your retirement income will depend on your lifestyle and personal circumstances.

For example, you may want to earn extra income before you retire if you want to take up new hobbies or travel. You may also want additional income if you retire before age 65 and are not yet eligible for an Old Age Security (OAS) pension.

You may want to give the money to a friend or family member when you retire. For example, you may want to set up a Registered Education Savings Plan (RESP) for a grandchild. You may also want to leave the money for a loved one or donate to charity when you pass away.

This choice will impact not only when you’ll need the income in retirement, but also what financial products you sign up for in retirement. For example, some pensions will pay your estate after your death, while others will not.

Unexpected events can also have a significant impact on your retirement income.

For example, you may have:

• Large unexpected expenses, such as home or car repairs
• Health emergencies for you, your spouse, or your partner
• Moving or changing your address due to a change in your health or that of your spouse or partner

You must have a plan to cover these costs, such as extended medical benefits or an emergency provident fund. You may want to consider planning for higher retirement income later in case your emergency benefits or savings aren’t high enough to cover unexpected expenses.

• The cost of investment fees.

Most finance and investment professionals will charge a fee for their services. It can be a fixed price or a percentage of the amount you invest. You may also pay different fees depending on the type of investment you have.

Here are some examples of investment fees:

• The cost of buying the investment
• Investment cost of sale
• Investment management fees
• Financial Advisor Fees
• Registered Package Management Fee

Mutual funds charge a fund management fee. The commission is called the management expense ratio (MER).

The MER:

• May include an ongoing fee paid to advisers who sell the fund (also known as a trailing fee)
• You pay regardless of whether the fund generates money or not
• Deducted before your earnings are calculated
• Fixed as a percentage of fund value

Implication in your taxes and benefits

Some sources of retirement income, such as RRSP or RRIF withdrawals, are taxable. This means that you may have to pay taxes on it.

Your net retirement income can affect the amount you receive in benefits from the federal government based on your income, such as Old Age Security (OAS) and Guaranteed Income Supplement (GIS).

For example, if your income is over a certain amount, you may have to pay withholding tax on your OAS payments. This means that you will have to settle part or all of your OAS pension by paying the OAS Withdrawal Tax. You might hear what it is called a recovery of the OAS.

As another example, if you are a GIS beneficiary and your retirement income is above a certain amount in a given year, you may receive less money from GIS in the following year. If you withdraw a large amount of RRSP, you may not receive any money from GIS next year. Talk to a financial professional to help you with your options.