If you are currently on the cusp of retirement, or are contemplating it within the next few years, it is only natural to assess your finances and start planning ahead for life after work. In Canada, there is no official retirement age. However, the average retiree is aged around 65. To qualify for a pension from the Canada Pension Plan (CPP), you need to be aged at least 60 and have made a minimum of one valid contribution while you were working.
Besides having your pension as a source of income, there are several tools that the government provides to help people save for their retirement, the most notable ones including the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA). However, some retirees may find that they need to earn extra income even during retirement to lead the lifestyle they want to live in retirement. Others may want to make an additional income to store their savings.
Regardless of the underlying motivation, retirement planning is an important aspect of your financial journey. It is key to understand the various streams of income that impending retirees can rely on in retirement, as well as habits and practices that can enable them to transition smoothly into a well-deserved retirement.
The Financial Reality of Retiring
Depending on where you live, whether you own or rent a home, and the type of lifestyle preferences you have in retirement, different people may have vastly different expense profiles in retirement. However, a general rule of thumb that many personal finance experts advocate for is to assume 70% of your regular expenses during the last year of your working life in each year of retirement. For example, if you spent $60,000 at age 64 and are planning to retire at age 65, you can assume that you will spend $42,000 (i.e., 70% of $60,000) starting at age 65.
In Canada, the biggest expense that retirees face is the cost of housing. This includes outstanding mortgage payments, annual insurance and maintenance costs, and other general costs of household upkeep. After housing, some of the other major expense categories include (by order):
Healthcare (medicine, procedures not covered by public healthcare, etc.)
Food and transportation
Entertainment (theatres, museums, etc.)
To fund these costs in retirement, there are several income streams available to retirees in Canada:
Pension payments from the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP). In 2022, the maximum monthly CPP amount you can receive as a new recipient starting pension collections at age 65 is $1,253.59.
Old Age Security (OAS) pension which is a monthly payment you are eligible for if you are 65 and older. From July to September 2022, you could receive a maximum of $666.83 per month if you are aged between 65 to 74 and $733.51 if you are aged 75 and over, provided your annual income in 2021 was under $129,757
Employer pension plans that employees may have made regular contributions to over the course of their working life
Investments made in registered savings accounts (such as RRSP or TFSA) or personal investment accounts
How to Earn Money After Retirement
While the above income streams represent ‘passive’ income, there are also other active income streams you can develop to strengthen your retirement. Some ways that retirees can earn additional income include:
Consulting: If you spent a substantial portion of your life in a particular line of work, chances are that you hold an exceptional degree of domain expertise that can be very valuable to businesses or agencies. By offering this expertise and charging for your time, you can make some extra money while keeping your mind sharp in retirement.
Freelancing: With the rise of freelancing websites such as Upwork and Fiverr, searching for and completing gigs online is only a few clicks away. Identify a skill you have that is marketable online and see if there is demand for that skill on one of these freelancing platforms.
Tutoring: If you enjoy working with children, tutoring them in subjects such as mathematics, English, or science can be another good way to have a steady income source in retirement.
Become a landlord: While this may not be a feasible or desirable option for everyone, it can certainly be lucrative – particularly if you live in a good location. By renting out a room or your basement to a tenant (or even putting it up on Airbnb), you can acquire a steady stream of monthly income to supplement your passive income streams.
Planning for retirement can be a bittersweet exercise. On one hand, you have plenty to look forward to in terms of spending time with the ones you love or pursuing something you have always wanted to do. However, there can also be a concern about whether you have saved enough to fund a comfortable retirement. By implementing disciplined financial practices from an early age, you can ensure that you are well-positioned to meet your obligations in each year of retirement. There are also income-earning options you can pursue, such as freelance or consulting gigs if you want further reassurance of your financial situation.
Despite best-laid plans though, unexpected events can sometimes happen. Even if you anticipate covering your basic monthly needs comfortably through government or employer pensions and your investments, you may encounter a situation where you need a large sum of cash at short notice.
For situations like these, Magical Credit is here to help. We offer quick personal loan evaluation and approval processes to help you meet urgent financial needs and ensure that your retirement savings do not have to be compromised. To learn more about the work we do with thousands of Canadians nationwide, contact our team today!