Wednesday, October 29, 2014

How to Fund Retirement

Now that I am semi-retired, I was curious about how my retirement plan works - what are the sources of income to pay for my retirement?  Recall that my plan assumes that we keep living approximately the same lifestyle in retirement as we did when I worked.

My wife and I do not have a company or union pension plan.  I cashed out my pension from Nortel when I left, which was fortuitous as the company went bankrupt and some of the pension plans were underfunded and not government insured.  All of our retirement income has to be paid from our retirement assets or by the government.

My first question was: What are the sources of my Retirement Assets or savings?  I have IRAs and RRSPs that had contributions from my employers as well as some where I was the only contributor. The cashed out pensions were entirely paid by my employers.   In addition, we saved after tax money from salaries, bonuses, etc.  The answer was that we saved about 80% of our assets, and employers contributed about 20%.  This was a revelation, I thought my employers were more generous.

My second question was: What are my sources of income after retirement?  For this, I looked at a year in my retirement plan when both my wife and I are collecting Canada Pension Plan (CPP) and US social security.  The answer was that about 16% of our income came from government pensions, and 84% from our retirement assets.  Not as much of a revelation as I assumed the government was not too generous.

So my conclusion is that if you do not have a generous company pension, you need to save a lot of your own money to maintain your standard of living.  Your situation will be different as you may choose a different lifestyle or you may get more or less from the government, but I think the basic conclusion still holds - you need to save a lot of your own money.

You should consult a professional for retirement advice, the information above is not warranted in any way to be correct.

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