Where Will Your Retirement Income Come From?

How many people do you know have worked for the same company their entire life?  How many of them have an awesome pension plan they can count on to be there through their entire retirement?  OK, sorry to be a pessimist but really!  For most mere mortals, the question that begs to be asked is: where will your retirement income come from?

In my case, I have worked part time jobs while in school from age 10 to 19.  Then full time while finishing up studies to the current age of 44.  I have worked for 8 different firms since finishing school (way back when), with the most recent change happening this year.  This means when I retire at 62, my current pension plan probably won’t be enough.

Sure I live in Canada and the government provides a pension plan that I can draw from as early as age 60.  I’ll have to wait to 65 to get old age security and if I live above the poverty line, I’ll never see the guaranteed income supplement.  So what about the rest?  Where will the balance of my retirement income come from?

How about my savings?

Yep, I have a decent amount of registered retirement savings, accumulated over the years.  This has come from annual contributions and the fact that I have transferred amounts from past pension plans into locked-in retirement accounts.  I tend to maximize my registered retirement savings plan contribution annually, helps reduce the income tax grab as well.

I also set up a registered education savings plan for my children as well.  My hope is that the government grants and growth will pay for most of their education and I can, recover my initial deposits. Think about it, the government gives us $750 annually that can be saved once the child is born!

I have contracted a joint universal life policy which allows for tax deferred savings as well as individual plans for both children.  The goal is to allow for all our investments to grow sheltered from tax.  I am a believer in the power of compound growth and as long as the taxman keeps his grubby fingers away from my cash, I’ll be better off.

Lastly, my wife and I have opened tax-free savings accounts.  These are relatively new investment accounts where each Canadian resident can deposit up to $5000 annually and any growth (interest, dividends, capital gains) can be withdrawn tax-free.  Your original deposits can also be accessed tax-free.

Lastly, the plan moving forward is to create a non-registered savings vehicle that will take advantage of a leveraging strategy.  I am leaning towards a business opportunity as a means of diversifying my risk.  I could use borrowed money to invest but the rest of my savings is already tied up in the markets.  Either way, the trick is to make a return that beats the rate paid on the amounts borrowed.

Other sources of retirement income I have seen used by others include: individual pension plans, revenue properties, private loans to individuals and businesses.

So what about you?  Where will your retirement income come from?  If you are not sure, ask us for help!  Future posts will look at each of these income sources in detail, with real life scenarios and calculations.  Let us know if you want us to use your examples.

Author: Robert

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