Unit 8: Retirement Savings Plans

Retirement Savings Projections

• The following forms of savings are specifically intended for retirement:

• defined benefit RPPs
• defined contribution RPPs
• RRSPs
• locked-in retirement accounts (LIRAs)
• Other forms of savings are important in retirement planning, even though they may not be specifically
intended for retirement:
• equity in a principal residence
• shares of a corporation
• equity in other capital properties
• non-registered portfolio investments
• registered disability savings plan (RDSP)
• Tax-Free Savings Account (TFSA)
• We also need to consider three very important factors in developing retirement savings plans:
• age at retirement
• lifestyle expenditures
• the planning period
 Age at Retirement

• The age at retirement is a very significant factor in the

amount of savings required because every year later
that one retires means:
• one less year of income needs to be provided by the savings
at retirement
• one more year is available to accumulate the required savings
 Lifestyle Expenditures

• The amount required for lifestyle expenditures during retirement will

bear some relationship to the amount now spent on lifestyle
expenditures. However, there are other considerations in determining
the amount:
• Current lifestyle expenditures may include expenses for raising children.
These expenses will hopefully disappear before retirement.
• Accommodation costs may now include mortgage payments, while during
retirement, they may still include interest expense, or they may include rent.
• The starting point in determining an amount is looking at current lifestyle
expenditures and then adjusting them for expected changes.
 The Planning Period

• In deciding upon a planning period, there are a couple of

considerations:
• consider the number of years until the younger spouse or partner reaches age
90 as a fairly conservative starting point
• reduce it from age 90 if there are specific circumstances, such as health
problems, that would indicate a shorter life expectancy, or increase it if the
family has a history of longevity
• determine what the difference in savings would be if the client lives for
different numbers of years
 Forms of Savings

• Defined benefit RPPs

• Defined contribution RPPs
• RRSPs
• Locked-in retirement accounts (LIRAs)
• Equity in a principal residence
• Shares of a corporation
• Equity in other capital properties, such as a cottage or rental property
 Additional Savings Required for Retirement

• The amount of additional savings will be different if it is saved in a

registered plan, specifically an RRSP, or as non-registered savings
because the income tax rates are different.
• In the case of registered funds, the entire amount withdrawn is taxable. In
the case of non-registered funds, only the investment income is taxable.
• The amount will also be different for each spouse or partner if they have
different amounts of taxable income in any year, and they usually will.