retirement savings vehicles · pdf fileretirement savings goal ... travel & hobbies 9...

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Morneau Sobeco Retirement Planning Seminars

Retirement Savings Vehicles

Canadian Blood Services Defined Contribution Plan – 2009

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© Copyright Morneau Sobeco – All rights reserved

Agenda

> Why plan ahead?> Retirement savings

goals> Sources of retirement

income– Government– Employer– Personal savings

> Questions

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Why plan ahead?

>You’ll be retired for a long time– Life expectancy at birth in Canada

Source: Statistics Canada

8276199882.177 2001

7166195061591920

WomenMen

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Why plan ahead?

> How long will you live?

30.527.655

25.923.160

21.6

Female

19.065

MaleAge

Source: Uninsured Pensioners Mortality Table, 1994with mortality projection to 2015 using scale AA

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Financial preparation

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Retirement Savings Goal

> Common rule of thumb – you need 70% of pre-retirement income

> Government plans (CPP & OAS) replace only part of your income– Salary of $40,000 = 40%– Salary of $60,000 = 29%– Salary of $80,000 = 21%

> Balance: about 30% to 50% from employer & personal savings

> Include all family income

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> You will need to supplement this if you:– Plan to retire earlier – Have big spending plans for retirement– Have other family income with less generous

pension

Savings Goals

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How can one survive on 70%?

FoodMedical & health care

Children’s educationOther savings

Clothing

Mortgage payments / Rent

Retirement savingsDecrease Unchanged

Car (do you still need 2 cars?)

Travel & Hobbies

Income TaxesDeductions (CPP, EI, etc)

IncreaseDisappearExpenses during retirement

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Retirement Savings Goal - Example

> Josh is currently age 40, planning to retire at 65. Josh is making $50,000.

$17,89136%Balance needed from Employer & Personal Sources

$10,905$6,204

22%12%

Less - Amounts from Government sources:>CPP>OAS

$50,000$35,000

100%70%

Pre-retirement incomeTarget replacement ratio

$20,00040%

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> To provide 10% of your annual income as a pension:– You will need to accumulate a fund of about 1.5 times your

final earnings

6.0 x $50,000 = $300,000

$20,00040%

1.5 x $50,000= $75,000

$5,00010%

Fund Size neededAnnual Retirement Income

Income Replacement %

Savings Goals

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> Assuming you start saving at age 30, for each 10% of annual income you need, your annual contribution should be about:– Retire at 65 – 1 to 2 percent– Retire at 60 – 2 to 3 percent– Retire at 55 – 4 to 5 percent

Note:– Increase contributions if you start later

than 30.– Increase contributions if you expect longer

than average life expectancy.

Savings Amounts

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Savings Amounts

> And if you start at age 40, for each 10% of annual income you need, your annual contribution should be about:– Retire at 65 – 3 to 4 percent– Retire at 60 – 4 to 5 percent– Retire at 55 – 6 to 8 percent

Note:– Increase contributions if you start later than

40.– Increase contributions if you expect longer


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Savings Amounts

> And if you start at age 50, for each 10% of annual income you need, your annual contribution should be about:– Retire at 65 – 6 to 7 percent– Retire at 60 – 10 to 12 percent– Retire at 55 – sorry, too late!

Note:– Increase contributions if you start later than

50.– Increase contributions if you expect longer


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Retirement Savings Goal - Example

> Josh: starts saving at 40, plans to retire at 65

12% – 16%

3% – 4%

Contribution as a% of Earnings

$6,000 to $8,000

$1,500 to $2,000

Annual Contribution(based on Earnings of $50,000)

$300,000

$75,000

Fund Size needed

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Sources of Retirement Income

Governmentplans

Employer plans

Personalsavings

Retirement Budget

Sources of Retirement Income

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Government Benefits

> Canada Pension Plan (CPP)

> Old Age Security (OAS)> Employment Insurance

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Government Benefits

> Canada Pension Plan (CPP)

– Mandatory public plan for workers earning over the basic exemption (2009 -$3,500)

– Funding: employee & employer contributions

• Both contribute 4.95% of pay, up to YMPE

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Government Benefits

> Canada Pension Plan (CPP)– Benefits depend on:

• Number of contributory years• Average salary (to a maximum)

– Approximately 25% of your average employment income (up to a maximum) during your career

– Current maximum income recognized is $46,300– Full benefit at age 65 (2009) = $908.75/month– CPP Payments are indexed for inflation

• And are taxable when paid

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Government Benefits

Canada Pension Plan (CPP)

Increase of ½% per month (6% per year) for eachmonth between age 65 and the date the pension starts – Forever! Maximum pension starting at age 70: $1,181.38

Between 65 and 70

Reduced by ½% per month (6% per year) for eachmonth between the date the pension starts and age 65 – Forever! Maximum pension starting at age 60: $636.13

Between 60 and 65

Full pensionMaximum pension: $908.75 / month or $10,905 / year

Age 65

Pension in 2009Payment starts …

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Government Benefits

> Canada Pension Plan (CPP)– Death benefit

• Maximum $2,500– Survivor’s pension (spouse)

• Depends on age, kids and length of contributory period– Children’s benefit (orphans)

• Depends on age, kids and length of contributory period

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Quick tip

> To get an idea of the pension you will receive from CPP/QPP, ask for your free statement from the government.

> Canada Pension Plan (CPP) sources of information:– Canada Pension Plan Statement of

Contributions– www.hrsdc.gc.ca– 1-800-277-9914

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Government Benefits

> Old Age Security Program– Old Age Security pension

(OAS)– Guaranteed Income Supplement

(GIS)– Spouse’s Allowance

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> Old Age Security Pension (OAS)

– Public plan for Canadian residents– Paid from the general revenues of

federal government– Payable at age 65

Government Benefits

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> OAS (April 1, 2009): $516.96 ($6,203.52/year)– Clawback if 2009 net income is over $66,335

Reduction ($0.15 per dollar of income)

$66,335 $107,692

6,204 6,204

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Annual income (2009)

Government Benefits

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> OAS – Indexed quarterly (CPI)– Taxable– More information

• www.hrsdc.gc.ca• 1-800-277-9914

Government Benefits

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> Guaranteed Income Supplement (GIS)– Additional pension for low-income Canadians

• Single: annual 2009 income under $15,672• Couple: annual 2009 income under $20,688

– Payable at age 65• No early retirement benefits

Government Benefits

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> Guaranteed Income Supplement (GIS)– Maximum benefit (April 1, 2009)

• Single: $652.51 per month • Couple: $430.90 per person per month

– Indexed quarterly (CPI)– Non-taxable

Government Benefits

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> Spouse’s Allowance– Payable between ages 60

and 65– For widows and widowers– For spouse of retiree receiving

OAS and GIS– Benefit varies depending

on retirement income– Indexed quarterly (CPI)– Not taxable

Government Benefits

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> Employment Insurance– Must be available for, capable

of, and looking for work– Must disclose pension income –

may reduce EI benefits– Exceptions

Government Benefits

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Employer Plans - Types

Capital Accumulation Plans

Defined Contribution

RegisteredPension

Plan

(DCRPP)

Registered Pension Plan

(DB RPP)

Final AverageEarnings

Career AverageEarnings

Flat Benefit

Defined Benefit

Registered Retirement

Savings Plan

(RRSP)

Deferred Profit

Sharing Plan

(DPSP)

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Employer Plans – Capital Accumulation Plans

> Employer and employee contributions based on defined formula

> Contributions plus investment income are credited to each employee’s account

> Employee makes investment decisions

> Pension amount depends on employee’s account balance at retirement

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Pros:> Control over investment

choices > Visibility of account

balance> If returns are high, the

employee may have a higher retirement income.

Cons:> Employees bear

responsibility> Pension depends on

contributions made> If returns are poor, the

employee gets lower retirement income

Employer Plans – Capital Accumulation Plans

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Your Canadian Blood

Services Defined

Contribution Pension Plan

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CBS DC Pension Plan- Purpose

> The CBS DC Pension Plan exists to:– Provide adequate retirement income in

combination with government plans and personal savings

– Help you build your retirement income

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CBS DC Pension Plan- Member Responsibilities

> Ensure that your retirement income will be enough to meet your needs

> Allocate contributions among various investment options

– Review and make changes to your allocations at appropriate times

> Read all available information– Use the tools provided– Ask questions

> Get outside advice

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CBS DC Pension Plan- Contributions

> CBS Defined Contribution Plan:– Employer contributions:

• 6.75% of pensionable earnings– Employee contributions:

• 4.75% of pensionable earnings– Pensionable earnings do not include bonuses,

overtime, shift premiums– Employee chooses how to invest funds

• Summary of funds: cbs.hroffice.com

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CBS DC Pension Plan- Benefits

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Web site: cbs.hroffice.com

Pension Call Centre: 1-877-252-4442

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Your personal savings

Quick Tip:> To maximize your total family

retirement income:– Aim to have total family income split

equally between spouses• Minimizes income taxes• Maximizes your after tax income

– Use spousal RRSP to assist

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A note on income splitting…> Tax tips – pension income splitting

– Split eligible pension income between spouses for tax purposes– Eligible pension income:

• Over 65: lifetime payments from registered pension plan, an RRSP or a DPSP, and payments from a RRIF or a LIF

• Under 65: lifetime payments from registered pension plan, and certain payments upon death of spouse

Note: Your pension income will not be split by CBS;the split will be done on your income tax return only

Your personal savings

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> Canada Revenue Agency (CRA) sets your contribution limit

> RRSP contribution room is indicated on your Notice of Assessment from CRA

> New room each year is based on information for previous year:– Earned income– Pension Adjustment (PA) – “value” of benefits earned under

your Employer Pension Plan> New room for 2009 is 18% of your earned income in

2008, to a maximum of $21,000, less your PA for 2008> Unused contribution room can be carried forward to later

years

Your personal savings- RRSP Contribution Room

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> Tax-Free Savings Arrangement> Four features of TFSA:

– Contributions are made with after-tax money– No deduction for contributions– Investment earnings are tax-free– Withdrawals are tax-free

> $5,000 annual contribution limit in 2009

Your personal savings - TFSA

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TFSARRSP

NoYesWithdrawals affect means-tested benefits

DeathEnd of year you reach age 71Plan must be wound-up

NoYes - at withdrawalEarnings taxable

NoYesWithdrawals taxable

NoYesContributions deductible

YesYesUnused room carried-forward

RRSP vs. TFSA

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Your personal savings - Registered or non-registered savings?

$1,000 invested per year, with an annual rate of return of 8% and non-registered investment taxed at 30%RRSP total is shown after income taxes on withdrawal.

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> Your personal savings - The value of time

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> Financial preparation – A word on financial advisors

> A good idea!> Review your personal

financial situation> Help you reach your goals

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For more information…

CBS Defined Contribution Retirement Planning Workbook

cbs.hroffice.com

Pension Call Centre: 1-877-252-4442

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Fresh thinkingInnovative solutions

>Questions?

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