1 Planning for retirement Algonquin College May 22, 2012

2 Preparing to retire  When is the right time to retire?  Sources of retirement income  CAAT Pension Plan  Government pensions  Savings  Starting your pension

3 When should I retire?  Personal readiness  Career readiness  Financial readiness

4 How much money do I need? Retirement plans affect your retirement income needs  Lifestyle  Expense patterns  Re-employment options

5 How much money do I need?  Some expenses stop  Employment deductions, retirement savings, work expenses  Some new expenses start  Health and related premiums  Other changes  Discounts and deductions  Home, mortgage, children

6 What are my sources of retirement income? Early Retirement Date Age 65 Bridge Benefit CPP pension CAAT Plan Pension savings OAS pension

7 The CAAT Pension Plan provides  Predictable retirement income, paid monthly  For life  Defined benefit pension plan – based on your years of work and salary  Earned pension not affected by volatile market

8 What does the CAAT Pension Plan do for me?  Your pension builds throughout your career  Join when you are hired  Earn service as you work and contribute  Transfer in or purchase service if you can  Watch your pension grow each year

Saving for retirement

10 Pension myth My contributions pay for most of my pension

11 Value Member retires at 60 Lifetime pension: $21,967 Bridge paid to 65: $7,036

12 When am I eligible to retire? Age 65  Normal retirement – end of the month you turn 65 Early Retirement  Age 55 (with at least 2 years of service)  Age 50 (with at least 20 years of service)  Reduction could apply  Includes bridge benefit paid to age 65

13 Pension formula 1.3%xHAPE to AYMPExService + 2.0%xHAPE above AYMPExService AYMPE: Average of the Year’s Maximum Pensionable Earnings for the year of retirement and 4 preceding years. HAPE: Average of your earnings for the 60 consecutive months of pensionable service during which earnings were highest

14 Bridge benefit formula 1.3%xHAPE to AYMPExService + 2.0%xHAPE above AYMPExService 0.7%xHAPE to AYMPExService

15 Retiring at age 65 – Cynthia’s story Cynthia is planning to retire at age 65 She has worked at her college for 29 years Her highest average pensionable earnings are $74,000

16 Cynthia’s pension calculation Cynthia’s highest average pensionable earnings: $74, % x $47,360 x 29 years + 2% x $26,640* x 29 years = Lifetime benefit from age 65 $33,306 *HAPE - AYMPE ($74,000 - $47,360 = $26,640)

17 Retiring before age 65 Two kinds of early retirement pension  Unreduced pension  Reduced pension

18 When can I retire on an unreduced pension? 85 Factor  Your age + service = 85 or more 60/20 Rule  You are age 60 or more and have 20 years of service or more

19 What if my pension is reduced?  Reduction is 3% for every year before earliest unreduced retirement date (0.25% / month)  Adjustment is permanent  Applies to lifetime pension  Applies to bridge benefit

20 Retiring on a reduced pension – David’s story  David is 56 and ready to retire  His highest average pensionable earnings are $75,000  His total service in the Plan is 23 years and includes purchased service  His pension will be reduced

21 Calculating the lowest reduction factor  Age = 9 years x 3% = 27%  60/20 Rule = 4 years x 3% = 12%  85 Factor (85-79)/2 = 3 years x 3% = 9%

22 Retiring on a reduced pension David’s pension calculation includes an adjustment of 9% 1.3% x $47,360 x 23 years + 2% x $27,640* x 23 years =$26,875 – early retirement adjustment (9%)($2,419) = Lifetime benefit from age 56$24,456 * HAPE - AYMPE $75,000 - $47,360 = $27,640

23 Retiring on a reduced pension Because he is under 65, David will receive a bridge benefit until he is 65. It will be adjusted by the same factor as his early reduced pension. 0.7% x $47,360 x 23 years=$7,625 – early retirement adjustment (9%)($ 686) = Bridge benefit paid to age 65$6,939

24 David’s pension income David will receive $31,395 a year to age 65 –$2, / month to age 65 At age 65 when the bridge ends, he will receive $24,456 / year for life –$2, / month for life

25 Pension myth Once you hit the magic number, your pension stops growing

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27 Retiring before age 65

28 Pensioners

29 Protecting the power of your pension  Inflation adjustment is cumulative  Based on Consumer Price Index  New amounts added each January 1 st

30 Protecting the power of your pension Service from 1992 – 2007Service after 2007Service prior to 1992 Ad hoc GuaranteedConditional

31 Your pension lasts a lifetime  Your surviving spouse receives a pension of 60% of your pension for life.  75% survivor pension option  Survivor pension adjusted for inflation  Eligible children  Minimum 60 payments

32 Purchasing past service and leaves  Increases your pension and lowers your early retirement reduction rate  Check to make sure any eligible purchases are done

33 Plan for your needs  Plan your retirement date  Retire as early as 50, as late as 71  Bridge benefit for early retirements  Reduction of only 3% / year  Unreduced pension options  Age + Service = 85  Age 60 with 20 years of service  Age 65  Select survivor benefit of 60% or 75%

34 What are my sources of retirement income? Early Retirement Date Age 65 Bridge Benefit CPP pension CAAT Plan Pension savings OAS pension

35 Government pensions – CPP  Maximum pension: $11,840 ($ / month)  Start as early as age 60  Reduction applies  Start at age 65 with no reduction

36 Government Pensions – CPP  Apply for CPP 6 months before you want the payments to start  Get an estimate  Child Rearing Provision  To apply contact “Service Canada”  Payments made in the LAST 3 business days of the month

37 CPP Changes starting 2012  Reduction increases to 0.6%/month by 2016  Start CPP without any work interruption  Age 60 and under 65: can collect CPP on reduced basis, but must continue to contribute if working  Age 65+ can collect CPP while working and have the option of continuing to contribute and build more benefit  Drop more years with low or $0 earnings

38 Government Pensions – OAS Maximum OAS: $6, ($ / month)  Starts at age 65  “Claw back” applied to higher income

39 Collecting government pensions  Apply for CPP and OAS separately  Government pensions are paid in the last 3 business days of each month

40 Pension myth It takes 35 years of pension plan service to replace 70% of my income in retirement.

41 Income replacement – Cynthia Pre retirement income CAAT Pension CPP $74,000 $33,306 $6,481 $11,840 OAS Retirement income = $51,627 70% of pre retirement income + personal savings

42 What are my sources of retirement income? Early Retirement Date Age 65 Bridge Benefit CPP pension CAAT Plan Pension savings OAS pension

43 Your savings – RRSPs  Tax sheltered savings now to enhance your income in retirement –Contributions are tax-sheltered –Contribute each year with “earned income” –Contribution amount based on your income –Carry forward unused contribution room –Payouts are taxable  Pension Adjustment affects RRSP room

44 Your savings – Tax Free Savings Accounts  Save up to $5,000 a year and don’t pay taxes on earnings  Any individual over age 18 can contribute  Earnings are tax sheltered  Withdraw funds at any time  Payouts are not taxable

45 Income splitting  Allocate up to 50% of pension income to lower-earning spouse  Split your income at tax time  Reassess each year

46 When you’re ready, submit your paperwork  Marriage breakdown  Plan needs complete details of any pension division  Incomplete marriage breakdown paperwork is #1 reason for a delay in the first payment

47 When you’re ready to retire – consider Estate planning  Your beneficiary designation and spouse information is up to date  Review your insurance needs and will Health insurance  Review your choices carefully  You make your choice at retirement  Consult with your HR department for details

48 Collecting your pension is effortless  Paid by direct deposit on 1 st business day of the month  Pension + bridge are combined into one deposit  Payments are made in Canadian funds  Outside Canada, can receive a mailed cheque

49 Stay connected We send  Newsletters, handbooks  Bridge benefit reminder  Indexation info  T4A  Regular survey Keep in touch if …  You move  Your spouse or beneficiary info changes

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