Retirement Income

I recently read a post at My Own Advisor that got me thinking more about my retirement income streams.  While I’m still at least 20 years away from retirement, it’s important that I have some kind of plan to get there.

Time and again, I’ve seen family members and co-workers who weren’t prepared for retirement suffer some kind of financial hardship or not live a comfortable retirement because they failed to plan for it.  I don’t want to end up in that kind of a situation so I’m looking for ways that I can diversify my retirement income.

I want diversified retirement income streams so that I’m not relying on any 1 source for my retirement income.  I intend to have 5 sources of retirement income.

Canada Pension Plan

Despite all the concern about whether or not young people will have CPP when they retire, I believe that we will.  I’m not so sure about Old Age Security (OAS), but I’m not relying on it anyways.  CPP contributions have been increasing each year in anticipation of the strain on the plan when all of the baby boomers are retired and collecting it.  The plan is in reasonably good shape so I’m confident that it will form 1 of my retirement income streams.

How will I know how much money I’ll get?  Every July I call CPP and have them send me a Statement of Contributions.  It has all kinds of useful information, but most importantly for planning purposes, it tells me what my future payout will be at ages 60, 65 and 70 based on my contributions into the plan to date.  This is what I use to determine how much CPP I’ll get in retirement.

Defined Contribution Pension Plan 

I participate in a company sponsored defined contribution pension plan.  Every pay, a percentage of my pay goes into the plan.  The money is invested in a target date fund and some index funds.  One of the major weaknesses of DC pension plans is the lack of choice among funds.  That said, I’m confident that by investing the money in low-cost target date and index funds I’ll be able to grow the pension into a dependable income stream.

Registered Retirement Savings Plan (RRSP)

For most Canadians, an RRSP is a cornerstone of their retirement income plan.  Every year I try to max out my RRSP contributions so that I get the maximum tax refund from the government.  My RRSP is currently valued at over $110,000 so I expect it will be a major source of my retirement income.

Tax-Free Savings Account (TFSA)

As I’ve stated elsewhere, the TFSA can be a powerful saving and investment vehicle for growing your wealth.  I plan to max out my TFSA each year so that it can be a source of retirement income for me.  My plan is to basically buy and hold a collection of Canadian dividend paying stocks.  The great thing about the TFSA is that when I eventually start to withdraw some of the money in retirement it will be completely tax free.  In fact, a really great retirement strategy is to use the money from this account to offset some of the taxes that I’ll have to pay from the income that I’ll receive from CPP, my work pension and my RRSP.

Dividends for Retirement Income

I also plan to use dividends as part of my retirement income.  I make regular investments into my Dividend Reinvestment Plan (DRIP) accounts to purchase shares in Canadian dividend-paying companies and will continue to do so.  I don’t ever plan on selling them, just live off of the tax-efficient income that they generate.

This is my plan to create diversified income streams for retirement.  Do you have a plan for your retirement income?