Retirement Planning in Canada: A Guide from an Investment Advisor

March 5, 2023

Planning for the future

Retirement planning is essential to ensure financial security in one’s golden years. As a Canadian Investment Advisor, I have helped numerous clients plan for their retirement. In this blog, I will share insights into the retirement planning process and the major elements that any plan should include.

The Importance of Consistency

Retirement planning is an important part of financial management for individuals and families in Canada. It is important to start saving early for retirement, as the earlier one starts, the more time they have to save and benefit from the power of compound interest.

Compound interest is a powerful tool that allows individuals to earn interest not only on their initial investment but also on the interest earned over time. This means that the longer an individual invests, the more their investment will grow. Starting early can provide a significant advantage in terms of building retirement savings.

There are various retirement savings options available in Canada, including Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), and employer-sponsored plans such as Defined Contribution Plans (DCPs) or Group Registered Retirement Savings Plans (GRRSPs).

RRSPs are a popular choice for retirement savings as contributions are tax-deductible, and investment growth is tax-deferred until withdrawal. TFSAs are also a good option, as they allow for tax-free investment growth and withdrawals, although contributions are not tax-deductible.

Employer-sponsored plans such as DCPs and GRRSPs allow individuals to contribute a portion of their income to a retirement savings plan, often with a matching contribution from the employer. These plans can be a valuable addition to an individual’s retirement savings strategy. In addition to these options, individuals can also consider non-registered investment accounts, such as stocks, bonds, and mutual funds, to supplement their retirement savings.

It is important to consider these options and develop a retirement savings strategy that suits individual needs and goals.

Understanding Government Benefits

Understanding the various government benefits available to retirees, such as the Canada Pension Plan (CPP) and Old Age Security (OAS) is important for your retirement plan, even if you have a healthy portfolio already. These benefits can provide a significant source of income in retirement and can be optimized to maximize their value.

The Canada Pension Plan (CPP) is a contributory, earnings-related social insurance program that provides retirement, disability, and survivor benefits. The amount of CPP benefits an individual receives is based on their earnings history, and contributions made to the program over their working life. Individuals can start receiving CPP benefits as early as age 60 or as late as age 70, with the amount of benefits varying based on the age at which they begin to receive them.

Old Age Security (OAS) is a non-contributory, flat-rate benefit available to all Canadian citizens and permanent residents who meet certain residency requirements. The OAS benefit is indexed to inflation and can be received as early as age 65. Individuals with higher income levels may have a portion of their OAS benefits clawed back through the OAS recovery tax.

To optimize CPP and OAS benefits, individuals can consider delaying receipt of benefits until a later age, as both programs provide increased benefits for each year of deferral. Additionally, individuals can consider income-splitting strategies with a spouse or common-law partner to reduce taxes and maximize their retirement income.

It is important to note that CPP and OAS benefits are only one part of a comprehensive retirement plan and should be combined with the other elements as discussed in this guide. These benefits can be optimized through deferral and income-splitting strategies, but should be considered alongside other sources of retirement income, and align them with individual goals and objectives.

Building a Diversified Portfolio

Retirement planning should also involve building a diversified portfolio that can help you achieve your retirement goals. A diversified portfolio is a collection of investments across multiple asset classes, such as stocks, bonds, and real estate, that can help to mitigate risk and maximize returns.

Asset allocation is a key component of building a diversified portfolio. Asset allocation involves dividing investments across various asset classes in a way that aligns with an individual’s risk tolerance and investment goals. For example, a younger investor with a longer time horizon may be comfortable with more exposure to stocks, while an older investor with a shorter time horizon may prefer a more conservative allocation that includes more bonds and fixed income investments.

By diversifying across different asset classes, individuals can reduce the overall risk in their portfolio, as fluctuations in one asset class may be offset by gains in another. This can help to reduce the impact of market volatility and provide a more stable and consistent return on investment over time.

In addition to asset allocation, individuals can also consider investing in a range of securities within each asset class, such as individual stocks, mutual funds, or exchange-traded funds (ETFs). This can provide further diversification and reduce the impact of individual stock risk.

Building a diversified portfolio can also help individuals achieve their retirement goals by providing a consistent and predictable stream of income in retirement. This can be achieved through investments in fixed income securities such as bonds or through dividend-paying stocks.

Asset allocation is an important tool for mitigating risk and achieving investment goals, while investing in a range of securities within each asset class can provide further diversification. By building a diversified portfolio, you can help to ensure a consistent and predictable stream of income in retirement, while also reducing the impact of market volatility on your investments.

Protecting Your Investments in Retirement

Inflation is a major concern for retirees in Canada, as it can erode the purchasing power of your retirement income over time. Fortunately, there are a number of investment products available in Canada that can help to protect retirement income from the effects of inflation.

One way to protect retirement income from inflation is to invest in Canadian inflation-linked bonds. These bonds, also known as real return bonds (RRBs), are issued by the Canadian government and provide a return that is adjusted for inflation. This can help to preserve the purchasing power of your retirement income.

Another option for protecting retirement income from inflation is to invest in Canadian dividend-paying stocks. Dividend-paying stocks can provide a source of income that can increase over time with inflation, as many companies raise their dividends over time. Of course, dividend-paying stocks are subject to market volatility and risk, and should consider your risk tolerance and investment goals in discussion with an Investment Advisor.

Canadian retirees can also consider investing in real estate investment trusts (REITs) as a way to protect their retirement income from inflation. REITs are companies that own and operate income-generating real estate, such as office buildings, shopping centers, and apartments. As rents and property values increase with inflation, the income generated by REITs can also increase over time.

Dealing with inflation is an important part of retirement planning and any comprehensive retirement plan should include options on how to deal with it.

Plan for the Unexpected

Planning for healthcare expenses is an important part of retirement planning in Canada, as healthcare costs can be a significant expense for retirees. Fortunately, there are a number of healthcare options available in Canada that can help retirees manage these expenses.

One of the primary healthcare options available to retirees in Canada is the publicly funded healthcare system. While this system provides access to medically necessary hospital and physician services, as well as some diagnostic tests and treatments, it is important to note that not all healthcare services are covered.

Another option for managing healthcare expenses in retirement is to purchase private health insurance. Private health insurance can provide coverage for services not covered under the public healthcare system, such as dental care, prescription medications, and vision care. Private health insurance premiums can vary widely based on the level of coverage and the age and health of the individual.

Canadian retirees can also consider setting up a healthcare savings account to help cover healthcare expenses in retirement. A healthcare savings account is a tax-sheltered account that can be used to pay for eligible medical expenses not covered by a public or private health insurance plan. Contributions to a healthcare savings account are tax-deductible and withdrawals are tax-free.

Planning for healthcare expenses is an important part of retirement planning that should not be forgotten. Often, as Canadians, because of our ‘free’ healthcare, we forget to plan for larger-than-normal healthcare spending as we age. Remember, there are typically more items being off-loaded by provinces to individuals than less over time and we are seeing this in healthcare as well. Are you properly prepared for extra healthcare expenses in retirement?

No matter how far from retirement you are, it’s important to develop a plan. Even if you are one, five or twenty years from retirement, a professional Investment Advisor can help you maximize your investments, include elements in the planning that you may not think about and ensure the disbursements and re-optimization of your plan are considered in light of major market shifts, even during retirement.

Interested in a consultation on your retirement plan? Reach out to me today. And be sure to tune in monthly in 2023 for my continued thoughts on the markets, how they may change and what to expect.

Looking to make a change, want a second opinion, or looking for additional advice? Feel free to reach out to me any time by phone or email.

Author Steve McBride, Investment Advisor, Echelon Wealth Partners, looks forward to connecting with you about your future wealth management needs.


This blog is solely the work of Steve McBride for the private information of his clients. Although this author is a registered Investment Advisor with Echelon Wealth Partners Inc. (“Echelon”) this is not an official publication of Echelon, and this author is not an Echelon research analyst. The views (including any recommendations) expressed in this newsletter are those of this author alone, and they have not been approved by, and are not necessarily those of, Echelon.

Echelon Wealth Partners Inc. is a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.

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