News Releases
� The timing of your retirement will have critical financial consequences on your lifestyle
� Changes to CPP could mean up to $100k more if you retire at 70 instead of 60
� Important to consider non-financial factors that could affect retirement planning
One of the biggest factors outlined in the report are the upcoming changes to the Canada Pension Plan (CPP), which were implemented to create equity under actuarial assumptions between individuals who retire at different ages. Under the current rules, drawing CPP benefits prior to the age of 65 reduces monthly payments by 0.5 per cent per month. Conversely, pensions are increased by 0.5 per cent for every month one defers drawing on their payments past age 65. The CPP changes, which will be fully implemented by 2016, could significantly impact when one chooses to retire, providing a bigger incentive for those who choose to wait.
For example:
� The annual payment for a full CPP will be about $4,000 less if one decides to start collecting at age 60, and about $4,600 more if one decides to wait until age 70
� At age 90, the person who begins drawing CPP at age 70 will collect about $100,000 more from the CPP than the early retiree who begins collecting CPP at age 60
“The upcoming changes to CPP are just one example of why Canadians need to educate themselves on their retirement options,” says Tina Di Vito, Head of the BMO Retirement Institute. “In order for Canadians to start thinking about their retirement start date, they need to have a clear financial picture, be able to envision their goals and have a plan for the future. The best way to do this is to seek the advice of an experienced financial professional.”
The report also provides case studies that illustrate how retirement age impacts levels of retirement income; the earlier you retire, the more you will need in personal savings to fill the income gap. For example, an individual who chooses to retire at age 60 versus 65 will not receive Old Age Security for five years. This means the individual will require an additional $31,000 in personal savings to make up for the missing five years.
When planning for retirement, future retirees often focus on variables that are outside of their control, like the future state of the economy and how the markets will perform. According to the report, however, retirement age (and, in turn, retirement income) is something that most Canadians should be thinking about strategically.
“When planning for retirement, Canadians should also consider the non-financial aspects that may affect their retirement start date,” says Ms. Di Vito. “For many, work provides mental stimulation, a social network and a sense of purpose; future retirees should think about how these psychological benefits will be impacted once they retire. Couples should also consider the impact of their retirement age on each other. For example, if spouses of different ages are planning to retire at the same time, they should keep in mind how this may affect their respective pensions.”
Tina Di Vito offers the following tips for Canadians planning their retirement:
� Be informed – Familiarize yourself with how your government and employer pension benefits will be calculated. Avoid finding out at retirement that what you will receive is different from what you expected to receive
� Protect your retirement savings – As you approach retirement, restructure your portfolio to ensure that a portion of it is invested in products that are not subject to market fluctuations
� Obtain advice – Seek out the help of a financial advisor who can assist you in developing a retirement plan that best suits your needs
To view a copy of the report, please visit: www.bmo.com/RetirementInstitute
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For More Information:
Martha McInnis,
Sarah Bensadoun,
Laurie Grant, Vancouver, laurie.grant@bmo.com, 604-665-7596