WHAT IS RETIREMENT SAVINGS?

A well planned retirement savings should allow one to enjoy life, after retirement without any money worries. You never know what health problems you might face in old age, so it makes sense to plan for all eventualities. Having not to rely on your children for your financial needs in your old age will help you live your life with dignity even if you have to rely on them physically. It gives one a feeling of independence which is invaluable to anyone at any age.

Canada is one of the best welfare states where the federal government has various schemes and plans to take care of its people. One such plan is the Canadian Pension Plan. The CPP takes care of the elder citizens of Canada by providing them with a monthly income though taxable. However, it is imperative for everyone to plan their finances to sustain themselves, post retirement.

What is the Canada Pension Plan?

Wikipedia says that the Canada Pension Plan is a contributory, earnings-related social insurance program. It forms one of the two major components of Canada's public retirement income system, the other component being Old Age Security. Other parts of Canada's retirement system are private pensions, either employer-sponsored or from tax-deferred individual savings (known in Canada as a Registered Retirement Savings Plan).

The CPP program mandates all employed Canadians who are 18 years of age and over to contribute a prescribed portion of their earnings income to a nationally administered pension plan. The plan is administered by Human Resources and Social Development Canada on behalf of employees in all provinces and territories except Quebec, which operates an equivalent plan, the Quebec Pension Plan. The CPP is funded on a "steady-state" basis, with its current contribution rate set so that it will remain constant for the next 75 years, by accumulating a reserve fund sufficient to stabilize the asset/expenditure and funding ratios over time. Such a system is a hybrid between a fully funded one and a "pay-as-you-go" plan. In other words, assets held in the CPP fund are by themselves insufficient to pay for all future benefits accrued to date but sufficient to prevent contributions from rising any further. While a sustainable path for this particular plan, given the indefinite existence of a government, it is not typical of other public or private sector pension plans. A study published in April 2007 by the CPP's chief actuary showed that this type of funding method is "robust and appropriate" given reasonable assumptions about future conditions. The chief actuary submits a report to Parliament every three years on the financial status of the plan. In June 2011, the Canada Pension Plan Investment Board had $153.2 billion in assets under management.

How will Changes to the Canada Pension Plan Affect Retirees?

Changes will be made gradually to the CPP between 2011 and 2016. These modifications will not affect you if you have been receiving a CPP retirement pension before December 31, 2010 and have stayed out of the labour force.
However, you will certainly be affected if you fall under the following categories:
• Employee who contributes to the CPP, whether you are just starting your career or you are planning to retire soon;
• Self-employed person who contributes to the CPP;
• Employee between the ages of 60 and 70 and work while receiving your CPP retirement pension (or if you work outside of Quebec while receiving a QPP retirement pension); or
• Employer who contributes to the CPP on behalf of your employees.

What are the Benefits of Canada Pension Plan?

The Canada Pension Plan ensures a measure of protection to a contributor and his or her family against the loss of income due to retirement, disability and death. There are three kinds of Canada Pension Plan benefits:
• disability benefits (which include benefits for disabled contributors and benefits for their dependent children);
• retirement pension; and
• Survivor benefits which include death benefits, survivor’s pension and children’s benefit.

What are the Opportunities for Retirement Savings?

One opportunity for retirement savings is ‘insured annuity’ where the insured can enjoy tax exemptions while one is earning and also provides a monthly income that is more than the conventional alternatives like GIC. It also protects the original investment. The net returns increase dramatically with the purchase of life annuity because of the combination of the capital and the interest, while the taxable increases substantially because insurance policies are exempted from taxation under Canadian tax law.

This insured annuity plan works best for people in the age group of 60 – 85, but requires a medical check-up and clearance from a qualified doctor. The other avenues available for people for planning their retirement savings are the RRSP, GIS, Old Age Pension, allowance - in case of low income seniors although most of these plans have some restrictions, like applying before one turns a certain age and similar conditions.

With this increased income, one can buy a permanent life insurance that will benefit their kin in case of their untimely death. Another advantage is that all these benefits are tax-free. This new approach to explore all the possibilities with insurance policies and their benefits is something senior citizens have to be educated on. Most of them view insurance only in its traditional role, as an income provider to their families in case something happens to them and not as a retirement savings option. They have to be made aware of the different benefits that can accrue from an insurance policy. Especially these days, with interest rates on most deposits at record lows, they need to find out other ways to save and ensure a steady income for their twilight years.

Need for proper Retirement Savings

The need for proper retirement savings planning cannot be overstated. The elderly have to plan for sustenance, for any medical treatments and for physical support and care as the need may arise. The only thing to be considered in this annuity is that while the capital is protected, it is also out of reach. So it is more effective when coupled with an existing retirement plan.

References

wikipedia.org
servicecanada.gc.ca