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Changing Retirement Plans in Canada Amid Economic Pressures

Diane Clark, a 75-year-old retiree residing in Regina, never envisioned her golden years would be spent playing cards at a seniors’ home. Rising living costs and a constrained income have altered her retirement experience significantly.

“We don’t travel anymore; the quality of our food has declined, and we find ourselves homebound most of the time,” Clark shared. Reflecting on the financial landscape, she mentioned that the 2008 financial crisis severely impacted her pension investments, making her retirement plans more challenging. The subsequent inflationary pressures post-COVID-19 have added to the difficulties many retirees face today.

When advising Canadians who are contemplating retirement, she succinctly stated, “Save, save and save.” This advice resonates with recent findings from a CIBC poll, which indicated that approximately 66% of Canadians are revising their retirement plans due to economic shifts, including inflation and rising living expenses.

Consequently, many retirees are increasing their savings, while others are scaling back on travel and leisure pursuits, reevaluating investments, and adjusting their financial strategies accordingly.

Financial experts emphasize the importance of proactive financial planning for individuals nearing retirement. Jamie Golombek, managing director of CIBC tax and estate planning, advises, “It’s crucial to create a detailed budget outlining retirement savings and maximizing registered plans.” According to the same poll, over 70% of respondents expect to work during retirement, practicing either a phased or semi-retired approach, with some even extending their careers beyond the traditional retirement age of 65.

Many of these individuals are considering part-time work or engaging in the gig economy to supplement their income. “There’s a prevalent fear of outliving savings and potentially becoming reliant on family members,” noted Rudy Buttingol, president of the Canadian Association of Retired Persons (CARP). This concern has spurred advocacy for legislative reforms related to retirement planning.

The federal laws require individuals to initiate withdrawals from registered retirement savings plans (RRSPs) by the age of 71. They are left with limited options such as transferring to registered retirement income funds (RRIFs) or purchasing annuities. It’s important to note that withdrawing from an RRSP incurs withholding taxes, although transferring funds to an RRIF or purchasing an annuity does not. Nevertheless, individuals may still owe taxes when they receive payments from an RRIF. CARP argues that the mandatory withdrawal age disadvantages seniors who continue to work and may benefit from deferring their savings further.

An analysis by the National Institute on Ageing reveals that 90% of Canadians tend to start collecting their Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits by age 65 or earlier. The government allows for benefits to be claimed as early as age 60 or delayed until 70. However, taking the benefits earlier results in a reduced monthly amount. Waiting until age 70 can significantly increase the monthly payout, as Bonnie-Jeanne MacDonald, research director at the National Institute on Ageing, explains. “The pension can more than double if deferred until age 70. This pension is guaranteed for life and adjusted for inflation, making it an advantageous financial decision,” MacDonald said. She emphasized the necessity for individuals to understand their options while encouraging governments to clarify available information to assist Canadians in making informed decisions about retirement.

Diane Clark reflects on her past choices, advising that with the anticipated increase in life expectancy, she would approach her retirement planning more strategically. “We should have saved significantly more and considered different investment options,” she stated.

Source
globalnews.ca