After years of service, you’ve almost reached your 85 or 90 factor. Congratulations.
As you get ready to take the leap into life ‘after school’, it’s a good idea to ensure your financial situation is also ready to take the leap:
According to Statistics Canada, the biggest obstacle to a ‘worry-free’ retirement is debt. While you have a great pension plan in place, your goal should be to retire debt-free (or as close to debt-free as possible). Especially since you won’t be earning as much income in retirement.
Whether it’s your mortgage, car loans, or other debt—review your budget to see if you’re on track to have everything paid off by retirement. If not, you may want to consider accelerating those monthly debt payments if you can. The time to put that extra cash flow to good use is now while you’re still earning a full salary.
Did you know?
The Educators Financial Kickstart Challenge has found that only 53% of education members think their pension will be enough to fund their retirement—which, interestingly enough, coincides with the 54% of education members that want to take better control of their debt.
A recent BMO Wealth Management Study has discovered that retired Canadians are spending $2,400 a month (on average) on just the bare essentials (accommodation, living expenses, medical costs, etc.).
As an education member, you do have the benefit of a generous pension. However, the sudden shift from working income to pension income can still take a little getting used to. Therefore, to ease the financial transition from salary to pension, consider putting yourself on a pension budget 6 months to a year before you retire. This will give you a sense of whether you’ll be able to maintain the kind of lifestyle you were hoping for, all while meeting your day-today financial obligations.
To get a rough estimate of your pension income, use the following formula:
2% x credit (years of service) x best 5 years average salary = basic annual pension
That means if you earned $85,000 in your 5 highest salary years and have 30 years of credit, your basic annual pension would be $51,000 (2% x 30 x $85,000).
Ontario Teachers’ Pension Plan by the numbers:
31: the average number of years that OTPP members collect a pension
135: the number of retired Ontario pensioners currently over the age of 100
112: the age of the oldest retired educator collecting a pension
When you’re approaching retirement, you should also be sitting down with a Certified Financial Planner who is ideally familiar with education members in order to re-evaluate your investment strategy. From your objectives and asset mix to current level of risk, you’ll want to ensure the strategy you have in place is the right one to take you into the next chapter of your life.
Tip: If you have RRSPs, ask your advisor about building in a timeline as to when you should start withdrawing from them and how much (in order to minimize tax implications down the road).
In summary, the 4 fundamental financial planning steps to get you ready for retirement are as follows:
1. Assess your overall financial situation
2. Identify any (financial) obstacles that need to be addressed by retirement
3. Budget for retirement by ‘living in retirement’ before you retire
4. Review your investment strategy with a certified financial planner
Since 1975, we’ve been providing financial plans that have been helping education members pave the way to financial freedom—from their first year, all the way to retirement and beyond. From pay grids to pension plans, our knowledge of your pay structure during your working years and in retirement gives us the unique insight to offer the kinds of educator-specific strategies to help you plan and prepare for every stage in your life.
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The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.