Financial Simplicity - Part 17 - What If You Have a Pension or Retirement Account?

Once you know how much government benefits will cover, the next question is how to make up the difference. That’s where employer pensions and retirement accounts come in. If you’re lucky enough to have a workplace pension, it might cover most, or even all, of your remaining retirement needs. But for many Canadians, retirement accounts like RRSPs and TFSAs will need to do the heavy lifting.

There are two main types of pensions. The traditional defined benefit pension provides a fixed income for life, usually based on your salary and years of service. These are common in unionized or public sector jobs but are becoming rarer in the private sector. Defined contribution plans, like group RRSPs or DPSPs, work more like investment accounts. Your employer may contribute, but the final amount depends on investment performance and it's up to you to manage it.

If you don’t have a workplace pension, or if it doesn’t cover enough, you’ll need to rely on personal savings in RRSPs or TFSAs. RRSPs are tax-deferred, meaning you deduct contributions now and pay tax when you withdraw. TFSAs are tax-free, meaning you contribute with after-tax dollars but don’t pay tax on withdrawals. Most Canadians will use a mix of both, depending on their income today and expected tax rate in retirement.
The good news is that employer-matched plans can significantly boost your retirement savings. Even if the plan options are limited or fees are higher, that “free money” often outweighs the drawbacks. If you’re self-employed or working for a company without a plan, you can still build your own retirement nest egg - you’ll just need to be more proactive.

How this fits the matrix:
This article bridges the gap between government support and your personal responsibility. It emphasizes how workplace plans, personal accounts, and employer contributions all factor into your overall retirement income strategy.

How a financial advisor can help:
A financial advisor can review your workplace pension or group RRSP options, help you coordinate personal contributions, and project how your investments will grow over time. They can also help optimize your TFSA/RRSP mix based on your income and goals.

In the next article we’ll calculate how much income still needs to be covered by personal savings and how to estimate a realistic retirement goal.

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Disclaimer: This content is for informational purposes only and does not constitute financial advice. Mutual funds provided through Carte Wealth Management Inc. Insurance products and services offered through Carte Risk Management Inc.

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