So what does my retirement plan look like?

Corporate Defined Benefit Pension Plan

I am fortunate to work for a public corporation that still offers it’s employees a defined benefit pension plan.  I’ve been contributing to the pension plan since I started working back in 2008, so I have accrued roughly 3.5 years of service in the plan to date. My pension will be maximized once I achieve 30 years of service or I hit years of service + my age = 80, whichever comes first. I started working at age 21 so I will hit 30 years of service at age 51.

I view my corporate pension as the foundation of my overall retirement plan. The benefit that I accrue through the pension plan will likely provide me with the majority of my income in my retirement years.

Canadian Pension Plan (CPP)

Once I hit the age of 65 I will be eligible to receive CPP payments. I wrote a post last month on How You Can Estimate Your Canadian Pension Plan Benefits. If I retired today I would receive a monthly payment of $408.32 per month or $4,899.84 per year based on my CPP contributions to date. Since I have many years of working ahead of me I expect to receive the maximum CPP benefit of $986.67 per month or $11,840.04 per year when I retire.

My CPP pensions benefits will supplement my corporate pension plan as the base of my retirement strategy. Although not an optimal scenario, I feel that I could live comfortably off my corporate pension plan and CPP benefits if required.

Tax Free Savings Account (TFSA)

The third component of my retirement plan is to maximum my TFSA every year. So far I have managed to contribute the maximum of $5,000 to my TFSA since Tax Free Savings Accounts were introduced. As far as investments go, I hold a broad range of Canadian and foreign equities in my TFSA that are generally more income focused.

I view the savings in my TFSA as “gravy” on top of my corporate pension and CPP benefits. Last year I wrote a post that demonstrated that you can easily acquire over 1 million dollars in savings by contributing to your TFSA over a 30 year period with a reasonable rate of return on your investments. I plan to withdraw from my TFSA in retirement to fund my “want” purchases.

One of the main benefits using a TFSA in a retirement strategy is the fact that withdrawals are tax free.

Registered Retirement Savings Plan (RRSP)

Finally the fourth component to my retirement plan is contributing to an RRSP. Since I contribute to a corporate pension plan it limits the amount I can contribute to an RRSP every year. Therefore my RRSPs do not make up a major proportion of my retirement savings. To date I only have around $10K saved in my RRSP, but plan to contribute again this year.

To be completely honest the only reason I will continue to contribute to my RRSP is for the in year tax deduction.

Conclusion 

There you have it, that’s the story on my retirement strategy. Nothing too wild or outside the usual for most people. I feel like I’ve set myself up to retire comfortably. Only t-minus 26.5 years (at least) to go .

I’m open to any feedback or comments on my retirement plan.

The main benefit of the TFSA is that all investment income (capital gains, dividends, interest income etc.) is all earned tax free. To top it off, all with withdrawals from a TFSA can be made tax free as well.

Benefits of the Tax Free Savings Account

• Contribute up to a maximum of $5,000 per year
• Investment returns are earned tax free
• Withdraws from a TFSA are tax free! This includes both your contributions and all earned investment income
• Unused contribution room can be carried forward indefinitely to future years.
• The full amount of withdrawals from a TFSA can be re-contributed in future years.
• The TFSA supports a wide range of investment options including stocks, bonds, GICs etc.
• TFSA assets can be generally transferred to a spouse or common-law partner upon death.

The Downside

• Contributions to a TFSA are not tax deductible
• Investment losses within a TFSA are not tax deductible

Other Points of Interest

• The maximum annual contribution limit on TFSAs will increase with inflation in increments of $500.
• After you withdraw from your TFSA, be careful not to over-contribute in the same year. All over contributions above the $5,000 annual limit will be subject to a tax penalty.