With no savings at age 50…what can you do to save your retirement?

“Without personal retirement savings or without an employer pension plan, relying solely on government pensions [RRQ provincial et PSV fédérale] “For your retirement income, this is a lifestyle that is close to the poverty line — about $28,000 a year — that you may have to live once you retire after age 65,” warns Charles Antoine of the Time, practice leader in financial planning at National Management. Banking wealth. He is also a member of the Board of Directors of the Financial Planning Institute.

However, this shortfall in retirement savings can still be made up during the 15 years of pre-retirement work income.

“We should not get discouraged, even if these efforts to offset retirement savings may have a significant impact on budget priorities during the years leading up to retirement,” Mr. Goehir adds. How important is it?

“It all depends on the lifestyle desired or expected in retirement. For example, for someone who is approximately fifty years old and has about fifteen years to go from retiring at age 65, the contributions required to build a retirement savings capital can vary by about $1,500 per month, for a lifestyle of $40,000 per year, up to a minimum of $6,000 per month to finance a lifestyle of $80,000 per year »

Some calculations

In order to see more clearly, Journalism If Charles-Antoine Jouher and his colleagues calculated the amounts of financial assets in retirement savings that would be needed at age 65 to support different standards of living in retirement.

These calculations also make it possible to estimate the monthly retirement savings contributions that will be necessary during the 15 years prior to retirement in order to accumulate sufficient capital for the envisioned lifestyle after age 65.

These calculations are made on an individual basis with these basic characteristics:

– A person who turns 50 in 2024 and plans to retire at 65;

– A person who is eligible at age 65 for public pensions with the maximum amounts that can be expected over 15 years (provincial RRQ and federal PSV, about $28,000 per year);

– Someone who does not have an employer pension plan, and does not have assets that can be converted into cash upon retirement (real estate, investments, etc.)

However, how do we make up for the shortfall in retirement savings over the next 15 years before retiring at 65?

In fact, recalls Charles-Antoine Jouher, the relevant answers to this question depend on different elements of the planned retirement lifestyle, which can vary significantly from person to person.

“He should also prepare to postpone his retirement after age 65 to take advantage of a few extra years of work income, as well as increased public pension amounts.” [RRQ provincial et PSV fédérale] For every year the application is postponed after the age of 65. »

In the case of the regional QPP, for example, each year of application deferral increases by just over 8% the amount of future monthly pensions to be paid until the end of life.

“It is difficult to get such a return in addition to your retirement income with financial assets held in an RRSP [régime enregistré d’épargne-retraite] Or TFSA [compte d’épargne libre d’impôt] », points out Christophe Foucher-Courchesne, a financial planning analyst in the group led by Charles-Antoine Jouher at the National Bank of Finance.

Basic rules

But before arriving at such a postponement of retirement, Mr. Gohir reassures, there are basic rules in financial planning that can serve as a general background for a fifty-year-old who is concerned about his future retirement income.

First and foremost, “we should prioritize settling all debts, starting with those with the highest interest rates” such as credit card balances, auto loans and personal consumer loans.

Second, a fifty-year-old who lacks savings for his retirement plan in about fifteen years should seek to maximize his annual contributions to his retirement plan while his taxable income from work and other sources approaches its career peak.

“This is the best way to improve your RRSP returns over the long term: contribute to your maximum tax break and your ability to save in order to optimize your tax breaks during working years with higher taxable income,” sums up Charles-Antoine Jouher.

“Once you retire, you can spread your RRSP withdrawals — which are taxable — based on your other income so as to reduce the tax rate on all of your income.”

As for the TFSA, Mr. Goehir believes it is also a good way for a fifty-year-old to replenish his retirement savings, which are still in short supply about fifteen years before retirement.

But since the tax advantage of a TFSA is due to the tax break on the returns and appreciation of assets held in a TFSA, Mr. Gohir considers it a second priority for saving after optimizing RRSP contributions.

“After being exempt from income tax, a TFSA has the special advantage of being more flexible than an RRSP when it comes time to make payments as additional income in retirement, which are not counted as taxable income like RRSP withdrawals,” summarizes Charles-Antoine Jouher.

“It must therefore be viewed individually depending on the desired lifestyle and overall expected retirement income.”