The Road to Retirement: Beginning your journey

Transcription

1 The Road to Retirement: Beginning your journey CSS Pension Plan Welcome! This Road to Retirement series has been designed to help you understand your pension plan, and save for retirement. [When you see underlined text in the prsentation, your can click on these links to take you to a site with more information] In this presentation, you ll learn about key features of the Co operative Superannuation Society Pension Plan. By its end, you ll have a better understanding of defined contribution pension plans, like ours, what makes our Plan unique, and your responsibilities as a member. The road to retirement is often spoken of as a journey on which you travel until you reach your destination. In a sense, there are many similarities between actual travel and moving toward retirement 1 1

2 Beginning your journey CSS Pension Plan overview Planning for your retirement The Plan at a glance Pension contributions Investment funds Retirement income options What happens If you leave, become disabled, or periods of weak investment markets Guides and resources 2 Just like planning a trip, you ll need to decide on your destination and itinerary. When do you plan to retire, and what might retirement look like? In many ways, a pension plan acts like a passport giving you the option of going to more destinations. So it s important to understand just how far your pension plan can take you. You ll also need money to pay for your trip. So we ll look at the contributions and investments required to get you to your retirement destination, and how to access that money once there. You may encounter detours and diversions, such as leaving your employer, being disabled for a period of time or periods when investment markets are weak. And finally, as with any planned journey, there are guidebooks and experts that can help you along your way. We encourage you to review the next two presentations in this road to retirement series. Let s begin your journey 2

3 Planning your retirement What do you plan to do when you retire: Travel to a new place every year? Spend more time with friends and family? Focus on hobbies or charity work? Start a part-time business? Spend part of the year in another location? Other? What will it cost? Talk to a financial advisor Review resources and map your route! 3 Your first step is to choose a destination. When do you want to retire and what kind of a retirement would you like to have? Whether you want to travel, focus on hobbies, start a new career or do charity work, there are probably as many retirement destinations as there are people. What will it cost? Now is the time to do some research to get a general idea of how much money you will need every year when you retire. Talk to a financial advisor. He or she can act as your travel agent on your road to retirement. For information on finding a financial advisor, see the next presentation in this series, or review the Investment Choice guide on the CSS Pension Plan website. Once you have your retirement destination in mind, you ll be in a better position to know what resources you ll need. 3

4 Paying for your retirement Personal savings Government plans Employment pension plans Personal Registered Retirement Savings Plans (RRSPs) Tax Free Savings Accounts (TFSAs) Proceeds from other assets and non-registered savings Canada Pension Plan (CPP) Old Age Security (OAS) The CSS Pension Plan (Defined Contribution) Other employer pension plans, if any Contributions defined as a percent of salary Members choose how to invest contributions Retirement income depends on accumulated contributions and investment earnings 4 Your retirement income will come from three sources: your personal savings (such as Registered Retirement Savings Plans, Tax Free Savings Accounts, other non registered bank accounts or from selling property or other assets), government plans (such as the Canada Pension Plan and Old Age Security), and your employment pension plan. If you have had previous employers, you may also have a pension plan from them. (note you may pause this presentation now and select the links for more information on CPP and OAS) Your employer is a member of the Co operative Superannuation Society, so you are a member of the CSS Pension Plan. It is a defined contribution, or DC, plan and all DC plans have several things in common: First, contributions from members and their employers are defined, or set, usually as a percentage of salary. Next, members choose how to invest all contributions in funds offered through their plan, to save and grow their money. Like all registered pension plans, contributions and investment income are not taxed until the money is used for retirement income. Finally, the amount of retirement income can t be calculated until retirement. That s because it will depend on how much was contributed and how much investment income was earned over time. Now, let s take a look at the Co operative Superannuation Society and your CSS Pension Plan 4

5 The Co-operative Superannuation Society Purpose: provide retirement benefits to and for its members Administers the CSS Pension Plan Non-profit Member owned and controlled Structures own investment funds 5 When a pension plan covers employees for more than one employer, like this one, it s called a multi employer pension plan. Your Plan is administered by the Co operative Superannuation Society The CSS was incorporated in 1943 as a non profit organization to administer the pension plan for cooperatives, credit unions, and their employees. It is a non profit organization and it is member owned and controlled. It also sets up its own investment funds. These are the things that make your plan unique from other pension plans. 5

6 The Plan at a glance DC Plan Full-time must join after waiting period Part-time eligible to join after waiting period (check with Pension Plan office for details) Required contributions are set Employer matches them Immediate vesting Additional voluntary contributions (not matched) 4 investment funds to choose from Normal retirement is age 60 Early retirement possible Several retirement income options 6 The CSS Pension Plan will help you get to your retirement destination more easily so you need to understand what your Plan can do for you, and what your responsibilities are as a Plan member. Your Plan operates under set rules and pension laws in the province or territory in which you work (or last made contributions). Full time employees who work for a participating co op or credit union automatically join after the waiting period set by their employer. Part time employees with a minimum level of earnings, or minimum number of hours worked are eligible to join after the waiting period, but rules differ for each province, so contact the Pension Plan office for more details. Once you join, you make required contributions through payroll deduction to a pension account in your name. Your employer sets your required contributions and matches them, dollar for dollar. Immediate vesting means you own all employer contributions right away. You may also make additional voluntary contributions, though these are not matched by your employer. You invest all contributions in any or all of four investment funds. So how long is your journey? Normally, retirement starts at age 60 although early retirement is also possible. You can work longer, as well. And when you finally retire, you can choose from several payout options. 6

7 Pension contributions Required contributions 1% to 9% of salary set by your employer 100% match on every dollar you contribute Locked-in for retirement income only Additional voluntary contributions Up to maximum allowed by Canada Revenue Agency Not matched Not locked-in Not accessible until employment terminates Maximum annual contributions Yours and your employer s combined 18% of current pay up to Canada Revenue Agency annual maximum dollar limit 7 How you save for your retirement depends on the money contributed to your pension plan, and how you invest it and make it grow. Your required contributions are set by your employer, and can be as low as 1% of salary or as high as 9%. Your employer can confirm the amount you are required to contribute and you will also see the amount on your pay stub. By law, registered pension contributions, and any investment income they earn are locked in, usually after two years of service with your employer or two years of Plan membership, with a few exceptions. That means this money can only be used for retirement income. You can also make tax deductible additional voluntary contributions if you want to increase your retirement savings. Voluntary contributions are not locked in, so when you retire or stop working for a member employer, you can transfer them to a non locked in RRSP or you may withdraw them. However, you can t withdraw any voluntary contributions until you stop working for a member employer. You pay income tax on the amount you withdraw, but you don t have to use the money for retirement income. The maximum that can be contributed toward your pension in any year from you and your employer is set by law. It is equal to 18% of your pay up to a maximum annual dollar limit. (You can find this amount on the CSS Pension Plan website.) 7

8 Benefits of saving early Regular early contributions = BIG SAVINGS over time Even small amounts, begun now, can have a big impact Value of $100/month contributions over time ($48,000 invested over 40 years) $250,000 $200,000 $150,000 $100,000 $50, years 30 years 20 years 10 years 5 years $0 2% 3% 4% 5% 6% 7% Rate of Return 8 Voluntary contributions can make a significant difference to your retirement savings. Even small regular amounts, if you start now, can mean a healthy increase in your savings over time, because of the magic of compounding returns. This chart shows how contributions of $100 a month grow over time, at different investment rates of return. For example, if you make contributions of $100 per month, after 40 years those contributions would total $48,000. Even at the low annual rate of return of 2%, those savings will have grown to more than $73,000 during that time. That s an increase of $25,000. And if you had a 5% rate of return, you ll see that the same $48,000 of contributions has grown to more than $148,000. That s an increase of more than $100,000 and more than double what you contributed. The key is to start early. Compounding works its magic over time. Now let s look at how you invest your contributions. 8

9 Investments Four investment funds Money Market Bond Balanced Equity Initial investment (default) = Balanced Fund 9 The CSS Pension Plan offers four funds in which you can invest. They are: a Money Market Fund, a Bond Fund, a Balanced Fund, and an Equity Fund. Unless you provide different instructions, all contributions will be automatically invested in the Balanced fund, as the Plan s investment default. It is chosen as the default because it holds an asset mix expected to be suitable for a long term retirement investor. How you ultimately invest your pension money among the funds is your choice. You can invest everything in one fund, or divide it between different funds. Let s take a quick look at each of your investment options: 9

10 Investments Fund Money Market Fund Bond Fund Balanced Fund Equity Fund Low risk/low return Characteristics Expected return: prevailing short-term interest rate Modest risk/modest return May experience occasional losses due to fluctuating interest rates Moderate risk/moderate return About 60% equities (stocks) and 40% bonds Expected to produce higher average returns than bonds alone Periodic short-term losses Default fund Highest risk/high return Fairly frequent short-term losses Potentially higher average returns over long term 100% in equities (stocks) 10 First the Money Market Fund. It s a low risk/low return fund made up of short term Canadian investments. The fund s returns are typically the same as current short term interest rates in Canada. The Bond Fund is a modest risk/return fund. It mainly holds Canadian fixed income investments, but also has a small amount in foreign bonds and other investments that have the potential to provide higher returns. It may experience occasional losses due to fluctuating interest rates or defaults. The Balanced Fund is a moderate risk/moderate return option. It is made up of about 60% equities and 40% bonds. It is likely to experience periodic short term losses. It is the default fund. Finally, the Equity Fund, consisting entirely of company stocks, is the highest risk option of the four. Average returns are potentially higher than the others over the long term. It typically experiences fairly frequent short term losses. 10

11 Your risk tolerance How adventurous are you? Are you comfortable with pension and investment risk? Can you afford to take some risk? Can you afford not to? The greater the potential return, the greater the risk 11 You probably noticed that the expected return on each of the investment funds is related to its risk level. For the chance of the highest average returns, you have to take the greatest risk of losses, and vice versa. You can keep your risk of investment losses to a minimum but then you run the risk of not saving enough money to reach your retirement destination. What kind of investment returns do you need to reach your goals? Can you reach them without taking some risk? Would you be less stressed by working longer, saving more or scaling back your retirement lifestyle? These decisions are individual; and your personal risk tolerance is an important factor. A financial advisor can help you find the best investment strategy to meet your goals or suggest ways to adjust your retirement plan. For more detailed information about the funds and investing, review the Investment Choice booklet, and the next Road to Retirement presentation, called Making your journey count. 11

12 Retirement ages DC plan Normal retirement: Age 60 Early retirement earliest of: Age 50 or Age + years of service = 75 Phased retirement: Age 55 or later - requires employer s consent Convert pension funds to retirement income by end of year: Age So, when do you reach your retirement destination, and how exactly do you recognize it? The Plan s normal retirement age is 60. That means that most members convert their pension funds into retirement income then, or later. Early retirement is age 50. But, depending on your age and how long you ve worked for employer members, you may be able to retire sooner than that. If your age plus years of service with employer members total 75, you may retire. Your annual statement will tell you if you re eligible. There s one other possibility. Generally, you have to stop working for your employer before turning pension funds into retirement income. In some cases, you may be able to phase into retirement and draw on your pension funds while you continue to work for an employer member. There are some requirements: you must be at least 55 years old and have the written consent of your employer; your employer may require you to reduce your working hours; your spouse, if you have one, must also consent, and; as long as you re working, you must continue to contribute to the Plan. Not all provinces allow phased retirement to the same extent, so contact the CSS Pension Plan office if you want more information. Regardless of how long you choose to work, under federal law you must convert your pension funds to retirement income by the end of the year that you turn age

13 Retirement income options Guaranteed lifetime income Variable income based on investment returns Directly from Plan Monthly pension Variable Benefit* (VB) payments Transferred out of Plan Annuity Registered retirement vehicles (e.g., LIF, PRRIF) * Check the CSS Pension Plan office for availability 13 When you re close to retirement, it will be time to choose how to access the money in your pension account. You can choose from two categories of retirement income for some, or all, of your CSS Pension Plan money. You can select from guaranteed lifetime income options that provide a fixed amount of income, or variable income options that are based on investment performance where you continue to invest your pension funds after retirement. These options are available from the Plan and from your credit union or bank. If you have pension money that is not locked in, you can combine it with your locked in funds, or transfer it out of the Plan or withdraw it less applicable income taxes. Depending on the pension legislation that applies to your account, you may also be able to unlock some or all of your pension funds. 13

14 Retirement income options and spousal rights Spouse includes married and common-law couples entitled to lifetime pension if you die (can be waived) Relationship breakdown pension funds can be divided before and after retiring 14 When it comes to pensions, spouses have legal rights. Who qualifies as a spouse is defined by the pension legislation that governs your pension funds. Typically your spouse includes a person to whom you are legally married, or with whom you are in a common law relationship. Pension legislation protects your spouse s rights to receive retirement income from your pension funds. If your relationship with your spouse ends, your pension funds or retirement income can be divided. The Plan office will make the calculations at your request if this happens before retirement. If the relationship ends after retirement, contact the Plan office or the financial institution that you are receiving payments from. 14

15 Leaving your employer Leave all funds in Plan (send Pension Plan office your home address) Transfer locked-in funds to Locked-In Retirement Account or locked-in RRSP Transfer non-locked-in funds to RRSP or take as cash (taxable) Transfer funds to new employer s pension plan if allowed 15 If you leave your job and no longer work for any employer member of the Plan, you can deal with your pension funds in a number of ways. You can leave them in the Plan, managing your investments as you did while contributing. Please tell the Plan office if your address changes so you continue to get your statement and the annual report each year. You can always transfer or withdraw your funds later, unless you take a new job with an employer member then you re back in the Plan again! You can also transfer your funds to a locked In Retirement Account or a locked In RRSP. If you wish, you can withdraw any non locked in funds in cash, less taxes, or transfer them to an RRSP. Finally, you can transfer your pension funds to your new employer s registered Pension Plan, if it is set up to accept transfers. If it is, contact the Plan office for your next steps. 15

16 Unplanned life events Disability pension Termination due to illness, injury or disability May be able to access funds before early retirement date Income is based on your pension funds Survivor benefits If you die before retiring: go to spouse if single (or if spouse waives), to beneficiary or estate If you die after retiring: depends on your retirement income option 16 Unfortunately, illness, injury and disability are some of life s realities. If you stop working for your employer for any of these reasons, you may be able to use your pension funds as income before you reach early retirement age. Your income will be based on the pension funds you have saved to that point. If you find yourself in this situation, contact the CSS Pension Plan office for information on what you need to do. If you die before you retire, your spouse has the first claim to your locked in funds, even if you name a different beneficiary. Some provinces let a spouse waive this right. (Contact the Pension Plan office if you want details.) Voluntary contributions, and their investment earnings, will go to your named beneficiary, or if you didn t name one, to your estate. If don t have a spouse, all pension funds will go to your beneficiary or estate. If you die after you retire, survivor benefits depend on the retirement income option you chose. 16

17 What if? Can your pension funds be accessed? Pension funds cannot be withdrawn while you work for a member employer Required contributions are protected from creditors Voluntary contributions protected by most legislation Delinquent maintenance payments can be paid from Required and Voluntary contributions (most legislation) Pension funds cannot be used as loan collateral, Home Buyers Plan or Life Long Learning Plan Can your retirement income be accessed? Pension and Variable Benefit payments are usually not protected from creditors 17 Finally, just as you can t use your locked in pension funds for anything but retirement income, in most cases, creditors can t seize them to recover any debts you have incurred. There is an exception: most legislation allows unpaid child maintenance to be paid from pension funds. Some legislation doesn t protect voluntary contributions from creditors. And one last thing because you must use your pension funds for retirement income, you can t use them as collateral for a loan. Pension funds also don t qualify for the Home Buyers and Life Long Learning plans the way personal RRSPs do. After you retire, however, your monthly pension and variable benefit payments are usually not protected from creditors. 17

18 Guides and resources Publications Website: Annual statements Individual consultations & pension projections 18 This Road to Retirement presentation is only one resource to help you with your retirement journey. The Co operative Superannuation Society web site at and Pension Plan office provide many resources to help you. Select the link here ( note you may want to pause this presentation first ) to go to our site. Go to the Funds tab for information on each of the funds offered by the Pension Plan. Along with estimators and tools, the site offers many helpful publications and guides. A few you ll want to review include: The Plan a guide with a detailed description of the CSS Pension Plan. Future Financial Freedom, which is a workbook that takes you through the key elements of financial planning. Investment Choice gives detailed information on the investment funds. TimeWise is the Plan's news magazine, published each spring and fall. It contains articles and information about the Plan and related topics. Quarterly Updates provide recent performance information on the funds and markets. Plus, you'll also want to regularly review your annual statements, which are distributed early each year. You can ask for an individual consultation or pension projections from the staff at the Pension Plan office when you are closer to retirement. You can also do pension projections yourself on the website. The Pension Plan also offers retirement planning seminars and workshops for those approaching retirement. 18

19 Viewing your account online On the home page of the CSS Pension Plan website Click on Access your CSS Account Scroll down to How to get your Personal Access Number (PAN) and follow directions 19 Finally, you can view your pension information on the CSS Pension Plan website. To get a Personal Access Number, just go to the home page and click on Access your CSS Account. Scroll down on the page and follow the instructions under How to get your Personal Access Number (PAN). 19

20 What s next Beginning of your real retirement journey with the CSS Pension Plan Continue planning your retirement journey Road to Retirement: # 2: Making your journey count # 3: Reaching your destination Tell us what you think! 20 So your journey has begun: the ship s sailing out of the harbour, your plane is taking off from the airport you choose the metaphor. You ve reached the end of this presentation. We hope it has given you an idea of the importance of your journey toward retirement and how to prepare for it, what to expect along the way and the resources you can draw upon. Check out our other presentations, Making your journey count, which talks about how to make investment choices and Reaching your destination, which talks about how to prepare to retire. They provide more detailed information for different stages of your retirement journey. We hope you enjoy the trip and remember: it takes sustained work over a long period of time to reach your retirement destination stay on the road! 20 20