Strategies for Retirement Savings as a New Immigrant
Planning for retirement may not top your priorities as a newcomer to Canada.
You have a lot of other expenses, and you aren’t alone. Many first-generation Canadians arrive later in life and won’t save enough for retirement. However, to ensure that you are prepared, it’s good to know your options.
Estimates from experts say that you should save at least $500,000 before you are 65 to last about 25 years. That can look like a lot of money when you are paying a mortgage, sending your children to school, and looking forward to visiting family in your home country this summer. But remember, a little strategic knowledge now may allow you to live a comfortable life well into your 80s.
One key to retiring with a comfortable lifestyle is to know how much you’ll need and to plan.
Canada offers old age income to all eligible citizens older than 65 from three possible sources. These Canadian pension plans are excellent; however, they aren’t enough to cover all your retirement expenses. You may want to find a job that offers a pension and factor in personal savings and investment to meet your retirement targets.
A financial advisor can show you how to save and where to invest; however, before you book an appointment, read this article to educate yourself on Canada’s pension plans and strategies that can earn you money in your old age.
The Old Age Security program toolkit - Canada.ca is an excellent resource to show you who qualifies for the three retirement income programs from the Canadian Government and how to access this money at retirement. The three programs are the Old-Age Security Pension, the Guaranteed Income Supplement, and the additional Allowance. It also teaches you how to apply. It’s good to note that while one form of old age payment is guaranteed, you must live in Canada for 40 years after age 18 and contribute to old-age security to receive money from the Canadian Pension Plan (CPP).
There is also an income limit. For example, individuals who earn $129,581.00 will not receive the Canadian Pension Plan. The longer you work and contribute to CPP, the more money is available to you. To increase the value of the amount you receive, you may want to consider retiring at 70 instead of at 65.
Old age security: You may not have to apply for this income as service Canada will automatically enrol you, although it’s good to check in each case. Old Age Security (OAS) pension is $685.50 from 65-74 and $754.05 if you are older than 75.
Canadian Pension Plan: The Canada Pension Plan (CPP) retirement pension offers you a monthly income when you retire. However, you’ll need to contribute to the CPP with payments from your Canadian income to benefit from the retirement money, and you must reach 60 years old before you apply.
If your spouse or common-law partner earned CPP, you might also be entitled to money as a survival income when your partner dies.
Your working salary, contribution period, and age at the time you begin paying into your pension are all factors in the amount you receive, as the amount of money you pay into CPP impacts the money you’ll receive at retirement. For example, the maximum amount you can receive from your CPP at age 65 is $1,253.50; however, $727.61 is the average monthly amount paid out to retirees.
As you approach 65 years of age, apply for your CPP benefits early, months before your retirement date. The process takes time, and you won’t receive any form of income while processing your application.
Guaranteed Income Supplement (GIS): A Guaranteed Income Security is easier to receive. Unlike CPP, GIS is not taxable, and you will receive it at age 65 if your income is low. Since this income is designed to support low-income pensioners, you may not have to apply. However, you’ll need to submit taxes and live in Canada after you retire. If you retire with a low income, look for a letter from Canada’s Old Age Security and call them if you haven’t received notification within a few months of reaching 64. If you are single, widowed, or divorced and earn less than $20,784.00, you could make $1,023.88 extra per month. When you are married or have common-law partners, and your partner receives the supplement, you will receive a little less as an individual, $616.31 per month. If your income is less than $49,824 and your partner does not receive a supplement, the amount is $1,023.88.
Personal Retirement Income Strategies to Maximize your Wealth
Rental income: Owning your home offers security and functions as an investment. Besides being a dream of most young couples, it’s an excellent way to ensure housing security in retirement. If you choose your property in the correct zone, you can rent suites or rooms to add valuable monthly income or at least cover maintenance costs. In this case, Canada makes owning a home more accessible by offering an incentive. The First Time Home Buyer incentive encourages you to purchase your first home with a shared-equity mortgage. In addition, the Government may provide you with 5% of a home’s value for existing homes and 5% or 10% on new construction.
Specialize tax-free savings accounts: As with any investment, the Canadian financial markets fluctuate considerably. When you save cash towards retirement, there are two savings accounts: the Tax-Free Saving Account (TFSA) and the Registered Retirement Savings Plan (RRSP).
Tax-Free Savings Account (TFSA): TFSAs have a contribution limit of $6000 per year. You may have to pay a 1% per month penalty if you contribute more. Contributing less to a given year is okay because you can make a difference in your contribution next year.
Registered Retirement Savings Plan (RRSP): RRSPs are tax-free until you withdraw the money. So, they can grow, and you won’t have to claim the income from investment growth on your taxes every year. If you wait to withdraw money until your tax bracket is lower after you retire, the amount of tax you’ll pay is reduced. RRSP allows you to invest up to $27,830 or 18% of your income in an RRSP year.
Your future is a valuable investment. Preparing now will ensure earning and saving strategies that give you peace of mind at 65.
Calculating Your Canadian Retirement Income If you are unsure of the income difference you’ll need to make up for on your own, Canadian Retirement Income Calculator is a great way to calculate how much extra income you will need.
Canadian Immigrants' Pension Inequality - UBC Wiki