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Jan 1, 2016

Plan For Your Retirement Now: Why It's Never Too Early To Pay Attention To Your Pension!

by Ian Burns

Ian Burns and Shelley JohnstonThere’s an old Chinese proverb that says the best time to plant a tree was twenty years ago, but that the next best time is today. This old adage definitely applies to planning for your “future”. The earlier you start, the better chance you will have for a worry-free retirement.

The goal is to secure your future tomorrows with sound financial planning today. This will ensure you will have enough money to provide the standard of living that you ideally would like in your retirement. One can no longer rely on generous payouts from defined benefit pensions to fund their retirement. Not even our government programs are safe in today’s financial environment.

Whatever your income, putting money aside, paying off or reducing as much of your debt is the first step to building a strong financial foundation.

Saving in a Defined Benefit Pension Plan or a Group Retirement Savings Plan comes with unique tax benefits. You receive a tax break when you contribute to your retirement pot, and by matching what your employer is willing to add to your retirement pot, your money can grow to a sizable amount that is tax-deferred for decades to come. It never ceases to amaze us how many people don’t maximize their contributions to take full advantage of this employee benefit. There will be tax to pay eventually, but when you take out income from your retirement pension fund, presumably you will be in a lower tax bracket.

Many pension plans members are concerned about future potential changes to pension rules and regulations. Governments are always looking for new ways to raise revenues or reduce benefits, and many public sector pension plans are under review. Make no mistake: whether you have a public or private pension plan, you can expect the pension landscape to be very different for everyone in the not-too-distant future. Unfortunately, you have no control or say in what happens. It is difficult to predict how public or private pension plans will look in the next couple of years, let alone in the decades to come, which is how long the younger generation will have to wait until they’re able to get their hands on their retirement pensions.

In today’s world, one of the biggest challenges for those nearing retirement from the private sector is that many of the Defined Benefit plans are changing to Defined Contribution plans. This changes their retirement income flow and generally provides much less retirement income than originally planned and hoped for. This is why it may be time to get your financial future in order and understand the ins and outs of what your pension will provide. Don't wait for the day before you retire to figure this out.

The government is forever tinkering with certain tax breaks, such as, for example, income splitting. Today, a retiree aged 55 can access income from their defined benefit pension plan and income split with their spouse or significant other. However, when money is taken from a Defined Contribution plan or an RRSP, these monies are not eligible for income splitting until later in life (generally not until both are age 65 or over).

Look at the recent changes our government made to the Old Age Security program: the younger generation will need to wait to age 67 to retire rather than 65 (although rumour has it our present government will rescind this along with reducing the maximum limit to Tax Free Savings Accounts. Another dis-incentive to saving for one’s future.)

People need to plan and adapt for changes like these. All of this makes planning for one’s retirement future more and more challenging. Good reason to believe it's never too early to start paying attention to your pension and learning to fund your retirement.

Ian Burns, CLU, ChFC, EPC and Shelley Johnston, CFP, EPC, The Pension Specialists, Authors of “Pay Attention to Your Pension”, Whitby, ON, (888) 279-0622, info@ pensionspecialists.ca, www.pensionspecialists.ca