My Finances

First posted: August 3, 2009

When will I be able to retire with enough money to live on? That's a question many workers are asking themselves, and not just those over fifty. We plan our retirement the same way we plan our studies and our career, and for good reason: we now live longer thanks to improved living conditions and medical advances. Because our life expectancy is greater, we can expect to spend around 30 years in retirement. That's worth thinking about now and makes it worthwhile to keep a close eye on your savings.

Knowing the characteristics of your retirement plan

If your employer offers a pension plan, you're ahead of the game. However, you must have a good understanding of the retirement plan to which you are contributing.

First of all, you need to know whether you have a defined benefit plan or a defined contribution plan. In the first case, the pension annuity is known in advance. The plan pays its retired participants a retirement income calculated according to a formula that takes several factors into account (e.g. years of service, age). As for the defined contribution plan, only the contributions paid by the employer and by the employee are known. The pension annuity you will receive will depend on contributions made and the performance of the plan which, like any investment, is linked to market fluctuations.

Here are a few things you can do:

• check the age at which you could be eligible for retirement;
• ask whether the annuity is indexed to the cost of living;
• calculate your retirement annuity to see if the amount is sufficient so that you can readjust through other means if necessary;
• examine what the payment conditions are to beneficiaries in case of death, before or after retirement;
• find out whether the plan is coordinated with the RRQ, that is, whether your annuity will be reduced by a certain amount to take into account payments from the Régime de rentes du Québec;
• finally, to make sure you receive your annuity, it's essential to keep track of your plan's financial soundness.

How to keep track of your retirement plan

There's no way around it: you have to read all of the documentation that is sent to you. These documents contain a great deal of information on your plan. Examine your retirement plan's annual statement provided by your employer and the retirement committee's annual report, which describes the plan's evolution. Don't forget to read the brochures that are sent to you.

Don't hesitate to contact the people on the plan's support committee if you have questions. They're the best people to ask.

Finally, get advice from a financial planning specialist, who can help you get an overview of your financial situation at retirement.

And don't forget, by acting now, you will have a much better idea of your ability to maintain your standard of living when you retire.

How well do you know your retirement plan?