How to Start Planning for Retirement In 2024

Since settling into retired life, chances are you have friends or family members who are also approaching retirement. Perhaps they have started coming to you with dozens of questions, seeking advice on how they should start planning. With there being so much information to cover, you might not know where to begin so you can set them on the right path. No need to worry – simply share this article with them, and we have the rest covered.

Your first question should be, “Can I afford to retire?” Start by finding out more about your pension, and looking into what your Canada Pension Plan (CPP) and Old Age Security (OAS) payments could be. Check the balance of your Registered Retirement Savings Plan (RRSP), Tax Free Saving Account (TFSA) and any other registered or unregistered accounts. Will you consider working part-time to stretch your savings? Prepare a budget for the first few years of your anticipated retirement time.

You may want to run a few “what if” scenarios to determine whether you can retire this year, or perhaps in two or three more years. Do you anticipate any major commitments such as moving to a new home or city, purchasing a new vehicle, institutional care for you or your parents, or helping children with major purchases? Finding an independent, fee-for-service financial advisor to assist you might be beneficial.

Pensions

To better understand pensions and how they work, visit the Alberta Teachers’ Retirement Fund’s (ATRF) website, especially the section titled “Planning Your Retirement.” Many of the answers to your pension related questions can be found there, including pension options, eligibility, necessary timings, and documents to upload. Do you have substitute service or leaves of absence you can purchase? If you have additional questions, there are pension counsellors just a phone or Zoom call away, or by appointment in person if you are in the Edmonton area.

The easiest way to see what you might receive from CPP and OAS is to access your My Service Canada Account (MSCA). Although there are a few hoops to jump through to register, you will need access to this online resource to apply for CPP and OAS payments anyway. No need to wait until the last minute!

In 2024, the maximum CPP payment you are eligible to receive at age sixty-five is $1,364.60, but the average payment at age sixty-five is only $758.32. Why such a gap between the maximum and average? There are many factors that must be considered to receive the CPP maximum, but the key element is a need for thirty-nine years of employment with you contributing to the yearly maximum pensionable earnings (YMPE) in each of those years. However, they don’t need to be continuous years.

For parents who took time out of their work lives to care for young children, the CPP program will exclude up to seven years of lower or no contributions when they make their calculations. If you have multiple children, it could mean even more years excluded (this would alter your thirty-nine YMPE requirement!). Remember to complete the simple form when applying for your CPP if this applies to your situation.

CPP can be started anytime between sixty and seventy years of age. If you start early (before age sixty-five) your calculated pension will decrease by 0.6 percent per month (7.2 percent annually). That’s a thirty-five percent cut if you start your CPP at age sixty! Should you decide to wait past the age of sixty-five to receive your CPP, you will earn a bonus of 0.7 percent per month (8.4 percent annually). If you join the one percent club and wait until age seventy, that would be a forty-two percent bonus to your calculated pension at age sixty-five.

OAS has no early start time. You will receive $713.34 as of March 2024. OAS can also be deferred to age seventy, earning you 0.6 percent per month (7.2 percent annually), up to a thirty-five percent bonus .

As you decide when to take the CPP and OAS, consider your personal circumstances and choose what feels right for you. If you are afraid of an early death (family medical challenges, risky behaviours, etc.), then early might be your choice. If you have concerns about a declining income (ATRF pension has seventy percent cost of living adjustment) and want more income for later years, delaying by a few years (up to age seventy) might be a great option. CPP and OAS are fully adjusted for inflation.

Do you have RRSPs to use as a bridge to replace an early selection of CPP? From a tax perspective, drawing down RRSPs when you have only one pension makes the most sense, since your income will be at its lowest point when drawing only one source of income. Of course, choosing to deplete your RRSPs early means less funds to disperse via your will after your death. Spending some time with an independent financial advisor might be worth the cost.

Benefits

Up until this point in your career, your benefit package has been paid for by your employer. Once retired, this expense is now all yours. You will want to compare your current benefit provider’s level of benefits with other plans, such the Alberta Retired Teachers’ Association benefit plan.

Look carefully at more than just the monthly cost. Look at coverage details, what percentage of dental coverage is provided, and what are the maximums allowed in one year for various services. If you intend to travel, are there stability clauses, what is the maximum amount of coverage, and how long can you be out of the country?

Remember, all benefit plans have an “apply by date” that you must observe if you want to slide seamlessly from employment to retirement benefit plans.

Estate Planning

If you haven’t already started your estate planning, now is the time. A basic estate plan should include a will, an enduring power of attorney, and a personal directive. Legal advice is highly recommended for these documents. Check out the Alberta Retired Teachers’ Association Living Well Blog. There is a newer article dedicated to estate planning in Alberta which can be found by searching for “estate planning” in the website’s search bar.

Lifestyle considerations

Retirement is not just the end of working; it is the beginning of something new. You will still want the social interactions your previous stage of life provided. You will still look for a daily routine to anchor your life. You will still want opportunities to impact the lives of others. The biggest difference is that you are the boss! You will decide how and where these lifestyle considerations will take effect. You decide how to make it happen.

When you decide you are ready to retire, here is what should happen:

• Let your school board know your intentions with a letter of resignation.

• Apply to ATRF early, allowing time to complete any purchases or iron out wrinkles(at least three months in advance is recommended).

• Your pension will begin at the end of the month following your resignation.

• Ensure your retirement benefits are in place before you retire, at least one month in advance.

Retirement will be a fulfilling next stage of life, made even more enjoyable when you have looked at all your options and made informed choices to ensure the best possible future.

Ray Hoger
Chair, Pension & Financial Wellness Committee