Advertisem*nt
Retirement
By Aditya Nain on November 29, 2023
Estimated reading time: 8 minutes
Sponsored By
Fidelity Investments Canada ULC
By Aditya Nain on November 29, 2023
Estimated reading time: 8 minutes
Many Canadians are concerned about inflation’s impact on their retirement savings. Plan today to fill in any income gaps to help reach your financial goals.
Advertisem*nt
Image by Freepik
Whether you’re retired, approaching retirement or still a couple of decades away, today’s persistent level of inflation might have you wondering whether you’re saving enough to retire. Inflation can make or break your retirement plan because it determines the purchasing power of the dollars in your bank account. The higher the inflation rate, the higher the cost of living, and the more money it will take to sustain the same standard of living.
Advertisem*nt
Advertisem*nt
Post-pandemic, Canada experienced a dramatic spike in inflation—up from roughly 2% in 2019 to a peak 12-month inflation rate of 8.1% in June 2022. As of October 2023, the inflation rate was 3.1%. Since today’s cost of living is higher than anticipated, there’s a feeling among those close to retirement that they may have to delay their retirement age to save more money. According to Statistics Canada’s June 2023 Labour Force Survey, about 55% of people who are planning to retire (but haven’t completely retired yet) report that they would continue to work if they could do so part-time.
If you’re planning for retirement, it’s a good idea to review all your potential sources of income, including government benefits, workplace pension plans and your own savings and investments. How do you stack up against the average Canadian retiree—and what steps can you take today to grow your retirement nest egg?
The average Canadian retirement income
According to the 2021 Canadian Income Survey, the average after-tax income for senior families in 2021 was $69,900. And for a senior individual, it was $31,400. That works out to $5,825 per month for a couple and $2,616 per month for an individual. Would that be enough to maintain your current lifestyle, if you were to retire, say, tomorrow?
Of course, the amount of money you need for your retirement could differ drastically from the averages, and it will depend on the lifestyle you want to lead after you stop working. If you’re a 35-year-old planning to retire at 65, for example, try calculating the monthly amount you would like to have in retirement—in today’s dollars. Let’s say that’s $3,000 per month after tax. Considering an inflation rate of 3% and with 30 years to go until you retire, that translates to a future value of $7,282. Where’s this money going to come from? Let’s look at all the possible sources.
Sources of retirement income: CPP, OAS and more
Typically, young people are not in a hurry to think about retirement. But planning early can help you understand how much money you’ll need, where it will come from, and how to fill any gaps. Plus, the earlier you start saving and investing, the more you could benefit from compound growth. In Canada, retirees can receive income from multiple sources, including government programs and personal savings.
| Retirement income source | How it works |
|---|---|
| Canada Pension Plan (CPP) | • Working Canadians contribute to the CPP during their working life. • Quebec residents have the Quebec Pension Plan, and Alberta is in the midst of a debate about a possible withdrawal from the CPP. • In retirement, Canadians receive a monthly amount, which is calculated based on how much they contributed and for how long. • In 2023, the maximum you can receive per month is $1,306.57, and as of June 2023, the average monthly CPP received (at age 65) for a new retirement pension was $772.71. |
| Old Age Security (OAS) | • This is a monthly payment received once you turn 65. • It’s based on how long you’ve lived in Canada since age 18. • As of 2023, the maximum monthly OAS amount you can receive if you’re 65 to 74 years old is $707.68. • If you’re 75 and over, the maximum is $778.45. |
| Guaranteed Income Supplement (GIS) | • The GIS is another government program for seniors. • The eligibility and amount received are based on two factors: your marital status (single, divorced, widowed, married, common-law) and your previous year’s income. • As of 2023, the maximum amount is either $636.26 or $1,057.01, depending on your marital status and your/your partner’s or spouse’s income in the previous year. |
| Employer-sponsored pension plan | • These are registered plans set up by your employer to which contributions are made either by you and your employer or just your employer. • There are two types: defined benefit plan (DBP) and defined contribution plan (DCP). • In a DBP, you know the amount of money you will receive each month in retirement. • In a DCP, the contributions are known, but the amount received in retirement isn’t known beforehand, because it depends on the performance of the financial markets. |
| Personal retirement savings and investments | • Personal retirement savings include all the investments you’ve made for your retirement—apart from government programs and employer-sponsored plans. • These include registered investments such as your registered retirement savings plan (RRSP) and tax-free savings account (TFSA), as well as your unregistered investments. • Registered accounts provide either a tax deduction, tax-deferred growth, tax-free growth or a combination of these. • Non-registered investment accounts offer no tax breaks, but note that different types of investment income are taxed differently. (Learn more about investments and taxes.) |
Build retirement savings with RRSP contributions
The RRSP is a cornerstone of many Canadians’ investment and retirement plans. It’s a registered account that offers a tax deduction for contributions and tax-deferred investment growth. You can contribute up to 18% of your previous year’s earned income, up to a maximum of $30,780 in 2023. You can contribute to your RRSP anytime in the calendar year plus the first 60 days after the end of the calendar year. For the 2023 tax year, the deadline is Feb. 29, 2024.
Your RRSP can hold multiple types of investments, including:
- Public stocks
- Bonds
- Exchange-traded funds (ETFs)
- Mutual funds
- Guaranteed investment certificates (GICs)
The benefits of all-in-one ETFs
Canadian investors are increasingly aware of stock market opportunities as they search for growth to beat the rate of inflation. But what should you buy? Stocks? Mutual funds? ETFs? Many investors prefer exchange-traded funds because they can offer convenience, diversification, professional management and lower fees than comparable mutual funds. Additionally, ETFs can be easier to buy and sell using an online broker.
Advertisem*nt
One of the newer products in the ETF space in Canada is all-in-one ETFs, an even easier way to hold various asset classes—like stocks and bonds, and even a little cryptocurrency—in a single ETF. Investing in an all-in-one ETF removes the need for investors to manage and rebalance multiple funds themselves.
Fidelity’s All-in-One ETFs have the following target allocations (as at October 31, 2023):
| Fidelity All-in-One ETFs | Conservative | Balanced | Growth | Equity |
|---|---|---|---|---|
| Ticker | ||||
| Equity | ||||
| Fixed income | ||||
| Crypto |
With high inflation, young Canadians planning their retirement may be unable to rely only on their government pension and employer-sponsored pension plans. These can be supplemented with personal savings and investments, including by investing in ETFs in registered accounts like RRSPs and TFSAs.
Learn more about Fidelity All-in-One ETFs.
Read more about investing:
- Taking an active approach to ETF investing in Canada
- How many ETFs can Canadian investors own?
- Building a “core and explore” portfolio with an all-in-one ETF
- ETFs and RESPs: It’s always a good time to invest in education
- Buying ETFs in Canada Tool: The MoneySense ETF Screener
This article is sponsored.
This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers and approved by the client.
Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in ETFs. Fidelity’s All-in-One ETFs pay indirect management fees through their investments in underlying Fidelity ETFs that pay management fees and incur trading expenses (in addition to the indirect management fee, the Fidelity ETFs will also pay indirectly the operating expenses of the underlying Fidelity ETFs). Please read the ETF’s prospectus, which contains detailed investment information, before investing. The indicated rates of return are historical annual compounded total returns for the period indicated including changes in unit value and reinvestment of distributions. The indicated rates of return do not take into account sales, redemption, distribution or option charges or income taxes payable by any unitholder that would have reduced returns. ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.
The management fees directly payable by Fidelity All-in-One ETFs are nil. The ETFs invest in underlying Fidelity ETFs that charge a direct management fee, and as a result, pay an indirect management fee. Based on the management fees and the anticipated weightings of the underlying Fidelity ETFs, it is expected that the effective, indirect management fee for Fidelity All-in-One Conservative ETF will be approximately 0.34%, Fidelity All-in-One Balanced ETF 0.35%, Fidelity All-in-One Growth ETF 0.37%, and Fidelity All-in-One Equity ETF 0.38%. Actual indirect management fees will be reflected in the management expense ratio in addition to applicable taxes, fixed administration fees, trailing commissions, portfolio transaction costs and expenses, as applicable, of each ETF/Fund, posted semi-annually.
Each of the Fidelity All-in-One ETFs has a neutral mix, which includes a small allocation to Fidelity Advantage Bitcoin ETF™ ranging between 1% and 3%. If each portfolio deviates from its neutral mix by greater than 5% between annual rebalances, it will also be rebalanced. Such rebalancing activity may not occur immediately upon crossing that threshold but will occur shortly thereafter.
The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.
Portions © 2023 Fidelity Investments Canada ULC. All rights reserved. Fidelity Investments is a registered trademark of Fidelity Investments Canada ULC. The presenter is not registered with any securities commission and therefore cannot provide advice regarding securities.
Advertisem*nt
Related Articles
What you should know about cryptocurrency tax in Canada
Common questions from newcomers about working in Canada
Buying
Is this a good time to buy a home in Canada?
Economists expect interest rates to keep falling. So we asked four experts if now is the ideal time to...
Is this a good time to buy a home in Canada?
Debt
Battle of the generations: Who’s having the toughest time with finances in Canada?
Boomers admit they had it easier than others, but Gen Z gave themselves a C in paying off debt....
Battle of the generations: Who’s having the toughest time with finances in Canada?
Retirement
CPP payment dates this year, and more to know about the Canada Pension Plan
Here’s how Canada’s retirement pension plan works, who’s eligible for CPP, when you can start receiving CPP, and CPP...
CPP payment dates this year, and more to know about the Canada Pension Plan
News
CCB payment dates 2024, and more to know about the Canada Child Benefit
Parents, here are the CCB payment dates for 2024, along with how much you can expect to receive each...
CCB payment dates 2024, and more to know about the Canada Child Benefit
Learn
Micro-credentials in Canada: Is it worth it to upskill?
Having extra knowledge and skills under your belt can make your resume stand out. Learn them with short, affordable...
Micro-credentials in Canada: Is it worth it to upskill?
Earn
“Imagine if we had enough money to cover our rent”: Gold medallist Greg Stewart on the financial realities of pro para sport
Starting with Paris 2024, Canadian Paralympians will finally earn money for reaching the podium. Our Canadian athletes still face...
“Imagine if we had enough money to cover our rent”: Gold medallist Greg Stewart on the financial realities of pro para sport
Save
Why a reverse mortgage should be a last resort for most Canadian retirees
Reverse mortgages do the job of freeing up income for house-rich, cash-poor Canadian seniors. But their terms are often...
Why a reverse mortgage should be a last resort for most Canadian retirees
News
Canada’s inflation rate falls to 2.5%, paving way for another interest rate cut
The inflation reading gives some economists more confidence that the Bank of Canada will cut its benchmark interest rate...
Canada’s inflation rate falls to 2.5%, paving way for another interest rate cut
Advertisem*nt
