4 Best Retirement Plans in Canada

by | Jun 4, 2022

For many Canadians, the prospect of retirement looks good. And your retirement will be more enjoyable if you’ve built a retirement plan that protects the assets you’ve worked hard to acquire. Therefore, having enough money to support the retirement lifestyle you envision is very important. Luckily, Yogi & Associates has all the information on the different retirement programs in Canada. We recommend that you start thinking about your retirement plan today so that when the time comes, you have a plan that works for you and your family.

Typically, there can be three sources of income. Like government pensions, employment-related resources, and your own personal investments. Therefore, it is better that your income is well-structured to fit your lifestyle. In this article, Yogi & Associates has gathered all the facts about retirement planning. You can also visit our office as it is conveniently located in Mississauga.

If you’re putting money aside for your retirement, it’s important to know some of the best retirement plans available in Canada and how they might fit your financial situation. Therefore, you need to know which retirement plans will allow you to lead a comfortable life. In this guide, we will discuss the four best retirement plans in Canada. Alternatively, you can get advice from our skilled accountants in Mississauga, who will guide you in choosing the perfect retirement plans.

Registered Retirement Savings Plan (RRSP)

The RRSP is retirement savings account for people under the age of 71. Additionally, people who have already earned an income and have filed a tax return to create an RRSP contribution room can take advantage of this retirement plan. In addition, the RRSP is registered with the federal government. This means that the plan offers many tax advantages to facilitate retirement savings. You can contribute 18% of your earnings (of last year) to the RRSP.

For example, if you earn $50,000 in a year and contribute $10,000 to your RRSP, the government will deduct that $10,000 from your $50,000 income. So your new taxable income is $40,000. But the income tax your employer collects is based on $50,000 in income. This means you will get back what you overpaid as an income tax refund.

Note: When you withdraw money from your RRSP in retirement, you will have to pay taxes on it.

Old Age Security (OAS)

Old Age Security is a benefit program funded by general tax revenue. This retirement plan provides taxable payments to Canadian seniors every month. To be eligible for benefits, you must be 65 or older. Additionally, you must be a Canadian citizen or legal resident when your OAS application is approved. And your residence must be in Canada for at least 10 years from 18.

retirement plans

How does it work?

Service Canada will send you a letter when you turn 64 to let you know that you are enrolled in this retirement plan. And if you do not receive the letter, you will have to apply for SV. You can get a maximum benefit of $615.37 per month. But to qualify for OAS, you must have lived in Canada for 40 years. The best thing about OAS is that if you haven’t lived in Canada long enough to qualify for the maximum amount, you can still get a partial benefit.

Tax-Free Saving Account (TFSA)

The TFSA is a savings account introduced by the Canadian government in 2009. It is a multipurpose account. And it allows you to spend your TFSA money when and how you want. In addition, anyone 18 or older with a valid Social Insurance Number (SIN) can use their TFSA to buy stocks, bonds, and other investments.

“Budget your money is the key to getting enough.” – Elizabeth Warren

How does it work?

The amount you can contribute is defined by the TFSA contribution room limit. This limit is set by the Canadian Government every year. The biggest advantage of using TFSA is that any investment income earned or changes to investment value in the account is tax-free, even when it’s withdrawn Furthermore, you can make withdrawals at any time.

Point to ponder! 💭

If you’ve never contributed to the TFSA, you’ll have $81,500 in the contribution room in 2022. So keep an eye on your contribution room limit in the CRA’s My Account, as any amount. Excess contributions will be taxed 1% per month.

The Canada Pension Plan (CPP)

The Canada Pension Plan is a pension plan that gives you a taxable monthly benefit to add to your income when you retire. In addition, to benefit from the program, you must be 60 years of age or older and have made at least one eligible contribution to the CPP. And if you qualify, you’ll receive your CPP retirement benefits for the rest of your life.

retirement plans

You can get more information about CPP by checking our article, Canada Pension Plan: The 2022 Guide

How much do You Get?

The amount you get from the CPP depends on your contribution to the pension plan or retirement plan. This means the amount depends on how long you have made these contributions. And it also depends on when you decide to start receiving payments. While the maximum you can get is $1,203.75, you can get an average of $689.17. Furthermore, most CPP recipients receive much less than the maximum payment, with an average amount of 60%. So plan accordingly.

How to Start Planning for Retirement Plans

We suggest that you start thinking about retirement plans today. To make it easier for you, we’ll share some steps that will help you choose the right plan:

1. Calculate your Guaranteed Income

The first step is to write down all the income you expect to receive in retirement. This income is anything that comes from your retirement plan, including TFSA, RRSP, employer pension, savings, or other investments. Don’t forget your CPP and OAS benefits. In addition, you must pay taxes on the RRSP. Canada Retirement Income Calculator is helpful for estimating your retirement income.

2. Estimate Retirement Expenses

In the next step, you need to estimate all your retirement expenses. So include all expenses from your basic needs like housing, food, travel, and debt repayment to travel expenses and charitable contributions. You can use the budget planner to get an idea of ​​all your monthly expenses.

“Dare to live the life you dream of for yourself. Go ahead and achieve your dreams. “—Ralph Waldo Emerson

3. Calculate the difference

Finally, subtract your monthly retirement expenses from your estimated monthly income. And if your income is more significant than your expenses, it can benefit you after retirement. Conversely, if your costs exceed your income, you should develop a strategy for how much money you will collect before retirement. If you are unsure how to choose a retirement plan, our accounting experts in Mississauga will give you comprehensive advice.

The Bottom Line!

Why is pension planning so important? Simply put, the sooner you start saving for your future, the more comfortable you can live. Also, you should start thinking about the best possible ways to invest your money to be financially secure after retirement. Therefore, you must consult a financial planner. Our team at Yogi & Associates wants to guide you towards a better future and help you plan for retirement. To achieve this, you can get advice from our expert advisors in Mississauga.

Get in touch with Yogi & Associates!