A number of Canadians aged 54 and under will be affected by changes to Old Age Security (OAS) announced in the Federal Budget. In 10 years the age for OAS eligibility will rise from 65 to 67.
OAS benefits are currently paid to Canadians aged 65 and over; individuals can receive up to a maximum of nearly $6,500 per year based on meeting residency requirements.
According to a report by Harris Decima commissioned by the BMO Retirement Institute, 32 per cent of Canadians aged 25-54 will rely on OAS, the Canadian Pension Plan (CPP) and the Quebec Pension Plan (QPP) as their primary source of retirement income.
Tina Di Vito, Head of the BMO Retirement Institute, advises Canadians to adopt a long-term approach to saving for retirement and understand the right tax strategies to maximize old age security benefits. These strategies, despite the changes announced in the Federal Budget, enable income to be earned from the most advantageous sources.
BMO offers the following tips on how Canadians can prepare for retirement:
鈥� Understand what a retirement plan is: Having a retirement plan is more
than making contributions to an RRSP or participating in a pension plan.
A retirement plan is a document that can change from year to year,
depending on your life circumstances. A complete plan consists of the
savings phase (steps to get to your retirement) and the spending phase
(steps to ensure your money will last you through your retirement).
鈥� Save more: Taking advantage of an RRSP and/or TFSA, in addition to a
pension plan, is a tax-free way to save more money for life in
retirement. Establishing monthly savings goals will help get you on the
right track, as will setting up automatic withdrawals from your
paycheque into an RRSP.
鈥� Budget accordingly: When planning for retirement, making and following a
budget is fundamental. Develop a personal budget to understand how much
money you're expecting will come in and what portion of this you intend
to spend or save. It is important to review it regularly and make
adjustments where necessary.
鈥� Pay off debt: Saving for retirement is important, but so is paying off
debt. Make it a priority to pay off your mortgage and high interest debt
sooner.
鈥� Take advantage: Take full advantage of your workplace pension plan,
including any employee matching programs offered, and auto features such
as automatic enrolment and auto-escalation.
鈥� Choose investments that meet your needs: For investors who prefer to
take a less active role in investing, target date products such as BMO
LifeStage Class Funds allow investors to select the fund that best
matches their retirement target date and watch their investments
automatically evolve. Each Fund shifts its asset mix on an annual basis
so that the percentage of equity investments in the fund decreases as it
approaches its target end date. The Funds are intended to provide growth
in the early stages and to become progressively more conservative over
time.
鈥� Financial plan: Working with a financial professional to ensure that you
have a plan that takes into consideration your short- and long-term
goals - including a retirement component - is imperative.
