Some Canadians will have
enough income to fund their postwork lives without ever setting aside a dime in
their own savings accounts. How do you know whether you’re one of them?
The answer hinges on how much you’ll get automatically from the
retirement income sources you build up by living and working in Canada
A target
to aim for
The
Organization for Economic Co-operation and Development (OECD) tracks retirement
income data across its 34 member countries – and has established a “target
replacement rate” for retirement income.
According to
the OECD, retirees should aim to have 60 per cent of their gross pre-retirement
income once they hang up their lunch buckets or turn in their office keys in
order to maintain their standard of living as they age.
Across the
OECD, the average gross replacement rate for the worker earning an average
income is about 54 per cent.
In Canada,
retirees can typically expect to receive guaranteed lifetime income from Old
Age Security (OAS), the Guaranteed Income Supplement (GIS) and the Canada
Pension Plan (CPP), in addition to any other workplace pension income they
might also receive.
A focus
on retirement income, not retirement savings
Looking at
Canada, the United States, Britain, Australia and New Zealand – collectively
known as the Anglo-Saxon economies – retirees earning the average income can
expect to receive between about one-third (in Britain) to one-half (in
Australia) of their working income from guaranteed pensions once they hit
retirement.
The OECD
calculated these percentages by adding up the income from government and
mandatory private pensions (such as CPP in Canada), and comparing it with
earnings in member countries.
What if you
aren’t earning the average income, but something less – or more? Here’s where
the numbers get interesting: If you earn a lot more than the average income
before retirement, you can expect to get a lot less, in percentage terms, of
guaranteed lifetime pensions in retirement.
If you earn half of the
average income, you might have 80 per cent or more of your working income
replaced in retirement from mandatory public and private sources that you can’t
outlive.
On the other
side of the ledger, however, the replacement rate from guaranteed sources drops
off significantly: Retirees earning one-and-a-half times the average income
might need to replace roughly 75 per cent or more of their preretirement income
to hit the recommended target.
So many of us are saving enough, here is some interesting stats from CBC
News. They have compiled a number of important figures on retirement and financial
planning in Canada. All figures are from Statistics Canada unless otherwise
indicated.
Saving
with Registered Retirement Savings Plans...
5,953,370 — number of Canadians who
contributed to an RRSP in 2011 (down slightly from 5,956,010 in
2010).
24% — percentage of eligible tax
filers who contributed to an RRSP in 2011 (down from 26% in 2010).
$34.4
billion — total
RRSP contributions in 2011 (up from $33.9 billion in 2010).
$772.5
billion — total
amount Canadians were entitled to contribute to RRSPs as of 2011.
$683.6
billion — total
unused RRSP contribution room as of 2011 (accumulating since 1991).
22.7
million —
number of Canadians with RRSP contribution room in 2011.
$2,830 — median RRSP contribution in
Canada in 2011 (up from $2,790 in 2010).
$4,750 — highest median RRSP
contribution in 2011 (Nunavut).
$2,310 — lowest median RRSP
contribution in 2011 (Manitoba).
$775
billion — the
total value of assets in Canadian RRSPs in 2011 (down from in $782 billion in
2010), according to Investor Economics.
$22,970 — maximum allowable RRSP
contribution per person for the 2012 tax year.
$301,478 — amount in an RRSP at age 65
if a person started contributing $2,000 every year from age 25 (assuming five
per cent compound annual growth and 1.5 per cent inflation), according
to the Fiscal Agents
investment calculator.
$158,888 — amount in an RRSP at age 65
if a person started contributing $2,000 every year from age 35 (assuming five
per cent compound annual growth and 1.5 per cent inflation), according to
Fiscal Agents.
$75,080 — amount in an RRSP at age 65
if a person started contributing $2,000 every year from age 45 (assuming five
per cent compound annual growth and 1.5 per cent inflation), according to
Fiscal Agents.
...or Tax
Free Savings Accounts
$73.9
billion — value
of tax-free savings accounts in Canada as of June 2012 (up from $54.4 billion
the year earlier), according to to data from the consulting firm Investor Economics.
10
million —
number of TFSAs in Canada as of June 2012 (up from 8.56 million the year
earlier), according to Investor Economics.
$7,400 — average account holding
for TFSA as of June 2012 (up from $6,354 the year earlier), according
to Investor Economics.
$5,500 — annual contribution limit for
2013, an increase from the $5,000 annual limit that has been in place since the
accounts were created in 2009.
$25,500 — The maximum
amount you can put into a TFSA during 2013 if you've never
contributed before and were 18 or older in 2009
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