Retirement Myth Busting – Part 2
Well, there were so many myths to bust, that I had to break this post into two..just goes to show you what a confusing topic it is!
If you missed it, you can start with the previous post: Retirement Myth Busting – Part 1 where we discussed needing 70% of your income at retirement, the reality of adjusting your lifestyle to survive on pension income and, my favourite, the myth that you will spend less when you retire on some common work-related expenses.
The following are a few more myths to consider:
It’s easy to view retirement as the ultimate lifestyle-lottery win. No more getting up early, commuting, working 9-5, dealing with office politics. The reality, however, is that it is an extension of your current life. A transition phase. And, as with any major change in your life (choosing a career path, marriage, starting a family, moving, changing careers) planning and expectation play important roles. There are many stages of the transition.
Solution: Do some research, surf the web, read articles, talk to others who have recently retired or have been retired for some time and use this information in your planning for and expectations of retirement. Information IS power!
I reached out to my Financial Advising friends for their take on what the most common myths are they hear from their clients. Maureen Babin of Amarack Financial offered this myth stating that the reality for CPP pension benefits is quite complicated. For 2016, for example, the maximum, CPP benefit is $1,092.50, but the average CPP payment is just a little over $550 per month. At the most basic level, the amount you get from CPP depends on how much you put into CPP. The first criteria is you must contribute to CPP at least 83% of the time that you are working. Essentially, you are eligible to contribute to CPP from age 18 to 65 which is 47 years. 83% of 47 is 39 years. To qualify for the maximum, you must not only contribute to CPP for 39 years but you must also contribute “enough” in each of those years. CPP uses something called the Yearly Maximum Pensionable Earnings (YMPE), for 2016 the amount was $54,900. So if you make less than $53,600 of income you will not contribute enough to CPP to qualify for a point on the 39 point system. CPP is designed to replace only 25% of your working income, don’t be fooled thinking the government will look after me when you retire, it’s just not going to happen.
This hits home for me as my husband has not been “employed” for well over three years now, and sporadically employed for several years before that time, meaning that unless he gets full time employment, and soon, his CPP benefits will be minimal, at best. This is an important factor in us planning our retirement.
Solution: Calculate your anticipated CPP benefits today and periodically between now and retirement. Make the necessary adjustments.
Do you have a Retirement Myth to bust? Email it to me at firstname.lastname@example.org.
Happy, healthy finances!
Mary Ann Marriott
aka Dr Debt