Budgeting for Retirement

Are you thinking of or approaching retirement? Are you already retired? Have you made a budget to see how prepared you are? Even those who seem far away from retirement should give budgeting for retirement some consideration. By now, you may have good spending habits, and are financially responsible. Even still, you may need to revise your budget and become more aware of your expenses in retirement. Reassessing your budget will become beneficial in helping you helping make the most of your retirement savings.

Typically, your budget shouldn’t change drastically. However, there will be some increases and decreases in certain categories. For example, living expenses should stay roughly the same (utilities, food, etc.) but your leisure expenses may increase in retirement. With extra time on your hands, you will be able to spend more money on social outings (golfing, dinners, traveling, etc.). Also with the potential loss of medical benefits once you retire, it is recommended to buy additional health insurance in order to help cover costs of routine check-ups, prescriptions, etc. With all of this in mind, remember you are not receiving the yearly income you are accustomed to. You are now living off what you have saved in your RRSP, other investments, pensions, CPP (Canadian Pension Plan), and OAS (Old Age Security).

CPP starts to be collected anytime between 60-70 years of age. You make the decision on when you want to begin to receive payments, based on your tax bracket, your current employment status and income needs. The longer you wait until you receive CPP benefits, the greater the amount of your monthly payment. If you are healthy and financially stable, it is recommended to wait until age 65 before you apply for CPP. It is important to understand the impact of a yearly CPP benefit and the cumulative benefit of the CPP. Please ask us about our CPP timing assessment calculation. The majority of employed Canadians pay into CPP with every paycheque, providing an entitlement in retirement.

OAS is for people who are 65 or older who have lived in Canada for 10 years after turning 18, or if they moved to another country, they have lived in Canada for a total of 20 years after turning 18. If you have moved to another country for work, you may also be entitled to receive OAS and the other country’s OAS as well. Canada has signed social security agreements with a number of other countries that offer comparable pension programs. In order to receive OAS, you have to apply. Retirees with an individual net income above certain thresholds may have their OAS clawed back. OAS begins to be clawed back with incomes above $71 592 (as of 2014) and are completely clawed back when net income reaches $115 716 (as of 2014).

After you retire it is important to be aware that you may not be covered by a full health plan any longer. All the additional benefits you received while working may be gone. It is important to get health insurance to cover your medical bills for routine check-ups as you become older.

Once retired, a good rule of thumb to figure out how much you should be spending is:

  • Housing 35%
  • Transportation 15%
  • Food 15%
  • Medical 20%
  • Debt and Financing 10%
  • Miscellaneous 5%

Contact us for assistance