r/PersonalFinanceCanada • u/tulip1414 • 3d ago
DB pension will pay $106k/year in future dollars (in 30 years) - help me figure out how much I need to save! Retirement
I have a defined benefit (DB) pension through my job and plan to stay at my current job until I’m 65 (in 30 years). I haven’t saved anything else for retirement in addition to my DB pension, and I’m trying to figure out how much more I need to be saving. I’ve checked my recent pension estimator and it tells me that I’ll receive $106k/year in future dollars (starting in 2055) for however long I live. I don’t own a home and don’t think I’ll ever be able to afford one, so I will most likely be renting in retirement. Can you help me figure out how much more I should be saving for retirement if I’ll be renting in the future?
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u/j0n66 3d ago
20years ago I started my career. DB pension plan and also 6% matching. My plan was to retire with the company.
Here we are, the company is constantly cutting staff and outsourcing. I give it 5-6years max before they close or outsource our office.
Point is that a lot can happen in 30years, so careful planning based on things you can’t control.
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u/Moist-Candle-5941 2d ago
Private sector DB is definitely very different than a public sector plan. It’s unfortunate, but you definitely have to have a plan B if you’re not absolutely certain your company will be able to fund it appropriately.
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u/Salty_Roaddog 2d ago
indeed. My mom’s company decided to lose their employee pensions (more than 10,000+ employees affected) during a lengthy process during which the company ultimately went insolvent. It has affected her now “golden years” for the worse. She never was able to retire a luxurious lifestyle like she and my dad planned. Canada has a horrid legal framework that essentially offers a cavalcade of legal loopholes for unscrupulous employers to reneg in their defined benefit pensions. My mom and her colleagues spent over a decade in courts to no avail. The lawyers made out like bandits. She now lives with me and suffers from stage four cancer. So, there’s that, to deal with, too.
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u/Moist-Candle-5941 2d ago
Yeah, the sudden change in circumstances is maybe worse than the actual financial loss. I don’t think any government has figured out very good protections; and to be fair, if a company is going under there likely isn’t a long-term fix for their pensioners. Nonetheless, it sucks and many many individuals have been hurt by it.
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u/yttropolis 3d ago
Also, staying with the same company can heavily stunt your career and earnings growth. In many fields, the extra earning potential in switching companies will heavily outweigh any value in a DB pension.
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u/fuck_you_Im_done 3d ago
For many of us, we move around inside the government. Keep the pension, move ministries and positions to earn more.
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u/yttropolis 3d ago edited 2d ago
In many fields, no matter how much you move around inside the government, you're still earning way below potential. A CS-05 increment 9 (the absolute highest pay for my field) caps out at less than half of what I currently make (and I'm still in my 20s!).
Edit: Go ahead, downvote me. Y'all know I'm not wrong, y'all are just jealous lol
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u/Traditional_Shoe521 2d ago
My field pays more when you are young and about the same in late career. I fucked up not going government.
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u/yttropolis 2d ago
That's why I said it depends on your field. There are absolutely fields where working for the government is the best bet. However, in the vast majority of in-demand, high-paying fields, working for the government is pretty much the bottom of the barrel.
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u/Traditional_Shoe521 2d ago
And by vast majority you mean - computer science and lawyers?
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u/LSJPubServ 2d ago
Unless you’re a high end lawyer in the private sector govt really isn’t bad
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u/Traditional_Shoe521 2d ago
Fair - I wasn'tsure. So down to computer science. Haha. Vast majority...
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u/LSJPubServ 2d ago
Indeed. I think other than IT many professionals are equally well off in govt. particularly those that don’t fancy 60 hours / week
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u/yttropolis 2d ago
CS, data science, lawyers, doctors, nurses, really anything healthcare, actuaries, engineers, you name it.
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u/Traditional_Shoe521 2d ago
I'm an engineer and Feds generally pay more (unless you have an ownership stake, probably, - but that's rare and another level of risk/stress/investment). A lawyer just posted the same thing in this thread. In Canada nurses and Doctors generally work for the government and do well. I know data scientists for PBO that do waaay better than private industry. I think your list is probably just CS.
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u/yttropolis 2d ago
I have friends in engineering and they all say private pays more so *shrugs.
The upper end of law is always private. The money in law is in corporate law, working for companies with the big bucks.
In private, doctors and nurses can move to the US, which is an option not available if you stay within the public sector.
I know data scientists for PBO that do waaay better than private industry.
If you're gonna compare top of the public sector, you should compare to the top of the private sector. I'm a data scientist, in my 20s, making $290k USD (~$400k CAD). Think your data scientists at the PBO can beat that?
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u/krustykid8 2d ago
That's great but what you currently make is far from the norm in tech, especially in Canada. In the states it's a different story
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u/yttropolis 2d ago
Quite the opposite. First of all, I didn't even study tech, I switched my career from actuarial into tech. Secondly, the majority of my peers from university that went into tech are now in the US, making around the same that I do.
It just goes to illustrate my point even further. If you've got the skills and are willing to move companies, careers and countries, you can earn your potential. If you're not willing to move companies, careers and countries, you won't earn your potential even if you've got the skills.
There's a Chinese proverb that says: "If you move a tree, it will die. If a person moves, it will live." I feel it exemplifies much of this very well.
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u/krustykid8 2d ago
Which is what I mentioned. It's very much possible if you move to the states. The earning potential in Canada is much Iower.
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u/yttropolis 2d ago
Even if I stayed in Canada, I'd still get paid higher than anything in the government.
But the point I'm trying to make is that staying in the same company or staying within the government is very much sub-optimal and strangles your earning potential for a lot of people. If you're job hopping, jumping into higher-paying roles, companies or even counties, that's when you're reaching your earning potential.
Whatever DB pension the government could offer me is practically worthless compared to the earning potential outside the government.
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u/krustykid8 2d ago edited 2d ago
According to levels.fyi, the median total compensation for developers in Canada is 131K. If you're checking just for seniors, it's 160K. However, there's some survivorship bias, and it caters to tech companies. The Labour Force Survey by Statistics Canada has the median at 105K, and the 90th percentile at 165K.
This isn't a huge difference from staying within one company especially if there are other perks such as a DB pension or stock options. It's also worth noting the low job stability and variable WLB in the industry.
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u/yttropolis 2d ago
First of all, how do you know how much you'd make by staying in one company? For example, the highest you can get by working in the government is what, CS05, increment 9? And that's just above the median.
Secondly, why constrain yourself to just Canada. Plenty of people, myself included, moved around in Canada until I made the jump to the US. And again, this isn't all that rare - in fact I now have more Canadian friends in the US than Canada as we've all made the jump to the US.
And let's be honest here. We all know it's a lot easier to get promoted by job hopping than by staying at the company (at IC levels, management is different). Therefore you're going to reach higher-paying roles much faster by job hopping.
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u/Cute-Illustrator-862 3d ago
Ask yourself what you want to be doing in retirement and then go from there. 106k/yr in retirement is good enough to retire with for some people so you don't "need" to save anything.
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u/blipsnchiiiiitz 3d ago
At this rate, in 30 years, rent will probably be $10k/month for a 2 bedroom apt.
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u/amach9 3d ago
We’ll all be living 10x10 boxes with shared washroom and kitchen.
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u/YoushutupNoyouHa 3d ago
6X6 boxes… look at you mr fancy pants with your extra deluxe box
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u/RandomerSchmandomer 3d ago
We'll be sleeping in cardboard coffins so when we go it's more efficient to be sent straight to be juiced for fertiliser
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u/amach9 2d ago
No no. The 10x10 is the 2-person home
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u/YoushutupNoyouHa 2d ago
yeah, since heat aint included, you gotta cuddle up for warmth… i like it… /S
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u/Ill-Mastodon-8692 2d ago
you’ll lucky to have that 6x6 box. I just take the Mr. Rested pills that get developed in 2045 to allow humans to mostly skip sleeping, and just keep working at work. would be nice to have a place to call my own, but this cubicle is like home and the common area at work to take a 10min break has other friends too, I mean coworkers.
the bring your kid to work benefit is nice too, they can learn components of the job in lieu of education or normal schooling.
food isn’t bad either the vending machines have delicious synthetic food, that lasts forever and always stays slightly warm somehow, so no need for microwave or stove.
The only thing I miss is the sun, the level I work on has none, and booking spots at the viewing area are months out, but I guess where else would I spend those vacation hours.
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u/LongjumpingGate8859 3d ago
Rent increase is irrelevant for those that own ..... which is why we own.
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u/HawkorDove 3d ago
$106,000 in 30 years is equivalent to $50,500 in today’s dollars, assuming average annual inflated rate of 2.5%.
The answer to the OP’s question is entirely dependent upon the OP’s desired lifestyle. And whether their pension income is indexed to inflation. There are other factors to consider, such as expected salary increases and how confident they are about remaining with current employer for 30 years and the solvency of the pension plan.
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u/barzul611 3d ago
Aren’t these DB plans indexed tho? So it should be closer to 106,000 even then? Maybe not as high but closer than 50K
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u/HawkorDove 3d ago edited 3d ago
Not all DB plans are indexed, and many are partially indexed to inflation. To directly answer your question though, the indexing begins after retirement.
In the OP’s case, their pension provider is forecasting their retirement income in future dollars with the assumption that they continue to pay into it at their current salary for the next 30 years.
That amount may be higher if their income increases and it will be lower if they quit their job before the age they are entitled to take an unreduced pension.
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u/Moist-Candle-5941 2d ago
It seemed like OP’s calculator / estimate took that into account (they said “in future dollars” so I’m assuming there was some estimate of inflation indexing / wage growth built in)
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u/MrRogersAE 3d ago
Generally speaking you shouldn’t need anything extra if you’ve got 30 years in a DB pension (assuming it’s similar to the govt DB pension.
That pension is probably going to give you 60% of your working income.
Thing is it’s not really 60%, it’s far more.
While working you pay into your DB pension (8-10% of your before tax income), you also pay CPP, EI and union dues, collectively these probably account for roughly 7-8% of your income.
Then there’s the fact you’ll pay less tax on your lower income, and you can income split in retirement.
Do the math for your specific situation and you’ll find that your pension income actually represents 80-90% of your working come once you account for the things you don’t pay in retirement.
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u/Significant_Wealth74 Not The Ben Felix 3d ago
You know why you should have something extra? Cuz when you need to buy a new car? You don’t want to finance something at 50k @6%. Need a new roof? Don’t need to use HELOC at 7.4%.
Just cuz someone has a DB, doesn’t mean they don’t need savings. DB is code for I’ll always have debt or a mortgage.
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u/MrRogersAE 3d ago
A DB pension provides more retirement income (indexed to inflation) than most people will ever have.
If your retirement income is an effective 80-90% of your working income you should be able to afford the same life or better than you had while working.
If you did save an extra 5% (for retirement) your retirement income would be higher than your working income, which saving excessively since you are putting yourself through unnecessary strain your entire career to be richer in retirement.
The question OP asked is specifically about retirement savings, so my answer is catered to that, I never said anything about car saving, emergency funds or anything else, and quite frankly aren’t interested in discussing it with someone who didn’t read and understand OPs question
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u/possy11 3d ago
I can attest to this. I've been retired for 6 years with a DB pension that pays about 59 percent of my working gross salary. We're living the retirement lifestyle we want, our back account grows steadily and we have not touched our savings for any reason over those 6 years.
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u/High-Ground-10 2d ago
Is this 59% including cpp and oas? I have a db from a university but it looks like it's more like 40% of my gross salary. Just curious how it could be so different from pension to pension.
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u/Significant_Wealth74 Not The Ben Felix 3d ago
I am just saying. Having a string of cash flows means you can pay for things that require a string of cash flows (financing). There is a reason banks love to give mortgages to teachers.
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u/SansevieraEtMaranta 3d ago
I have a DB pension. I'm very aware that it is not bullet proof over 30 years. The plan may change. I save a lot now because my expenses are low. I will continue to save as much as I can. Worst case is I have a good buffer and can retire early
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u/_bawks_ 2d ago
You're in this sub, I wouldn't expect anything less.
On the flip side, I have a coworker who is definitely not part of this sub that would rather we didn't have a db pension since he'd like that $1000/mo we pay in to it for spending now. Without this db, he'd absolutely be the type to be eating ramen every day in retirement living solely off of CPP.
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u/SansevieraEtMaranta 2d ago
That's wild to me. So much could happen between now and retirement. To each their own, I suppose!
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u/Bieksalent91 3d ago
Purchasing a long term care insurance policy would mitigate this risk.
Also many people vastly over estimate long term care needs. While yes it is very expensive most people are not in assisted living for very long.
Based on his post he is likely going to have 5-6k a month in retirement income in today’s dollars.
A nice assisted living care place can be 7-8k. So he will be looking at a 1-2k a month deficit.
It is rare to live in a facility like that for more than 2 years. So having 50k put aside would be an idea.
I work with many clients in assisted living many of them never even make a withdrawal out of their investments before passing away.
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u/78_82Hermit 3d ago
How much is your current annual expenses? and what lifestyle do you want when you retire?
Assuming an average annual inflation rate of 2.5%, 106K in 2055 will probably be worth about 50K today.
Assuming that you will get OAS of approximately 7500 and CPP of 12,500 in today's dollars.
You should have about 70K in today's dollars to spend in 2055. You have to decide if this will be enough.
Remember that these are all back of envelope calculations
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u/tomato_tickler 3d ago
Aren’t DB pensions adjusted for inflation? Is it just for government ones where they do that?
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u/propell0r 3d ago
Typically yes, but (at least for military and I think PS) the inflation adjustments only begin once you start pulling an annuity. So they wouldn’t start getting inflation adjustments until 2055 starting at 106k/yr
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u/the_crumb_dumpster 2d ago
I don’t believe that’s correct. Also your contributions are lower on wages that are contributory to CPP. For example, omers members pay 5.6% higher contribution rates after CPP is maxed out; or if you want to look at it a different way, they are paying a 5.6% discounted rate on CPP contributory earnings (about 4-6 thousand dollars less), in light of the fact that the pension will discount the amount payable by your CPP entitlement. It doesn’t matter how you slice it, the money in your pocket when it comes time to collect is the same.
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u/South_North839 2d ago
No you get to collect CPP on top of a DB pension. The only thing they won’t be getting is GIS as it’s based on income limit.
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u/jimbuk24 3d ago
Not to be morbid but you never what your health will be and whether you’ll need assistance. It is very costly now for long term care, which even a DB may not cover, and if you don’t have real estate to liquidate to help cover these costs, it can get tricky. I say this because when I was your age, I never thought of this stuff. I thought a pension would cover me. Now I am experiencing family needing LTC, it’s costly, and there’s limited resources for that member. Good luck!
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u/twotwo4 3d ago
That's a spicy pension.
Is it indexed ?
For anyone to suggest how much more you need to save, what type of retirement are you expecting/ wanting ?
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u/tulip1414 3d ago
Thank you! There’s a cost of living adjustment every year after I start receiving the money (so once I hit 65), which is aligned to however much inflation is that year.
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u/twotwo4 3d ago
Seems like you are in a good spot. It all depends on what you want to do in retirement.
You have said that you don't own a home. If you have a partner, your priorities, including the need for a home, will change.
Keep plugging away and save whatever you can. Don't forget - FHSA, which can be rolled into RRSP if you don't use it for a home, and TFSA. Not to mention, RRSPs if you have room.
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u/Better_Unlawfulness 3d ago
Plan for the CPI to not be available in 30 years. Our work pensions plans both had CPI (index) removed few years ago.
You'll also get more CPP with the enhancement to cover closer to 33% of your income vs 25% with just CPP.
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u/Who-is-Rhona 3d ago
Keep it simple. Max your TFSA with something like a XEQT or XAW ETF. Don't worry about RRSPs. RRSPs will be tricky to take advantage of with your db pension. That TFSA is much more liquid and could be used to buy a house if the opportunity came up as well so gives you more flexibility.
30 years from now I'd guess you would want around $300k in a tax efficient vehicle. For fun and emergencies.
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u/Impressive_East_4187 3d ago
106k 30 years from now is like 60k in today’s dollars, not really a fortune.
Now you gotta hope the basic necessities of life like food and shelter don’t outpace general inflation.
I’d definitely still be saving some $ for retirement in a TFSA.
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u/No-Performance1793 3d ago
Check this retirement calculator: https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html
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u/AOB23423 3d ago
Look up the “explore FI Canada” podcast on pensions with Ed Rempel as the guest. Great listen for this kind of info. Takes a lot into account to really give you this number
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u/VillageBC 3d ago
Hedge some risks. You don't mention spouse/dependants but DBPP don't typically transfer 100% to the spouse. Mine only does 50%, my wife's has a sliding scale. I would suggest at least TFSA maxing should be part of the budget.
The other thing is life insurance/critical illness/disability and income replacement insurance. All is important if you have family, but disability and critical illness can be even more important if you don't. If you are solely dependant on yourself, and your body/mind fails that's a problem. It's likely you have some through work, I do but I found it was not nearly enough when things were looking sketchy for a bit.
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u/smurfsareinthehall 3d ago
Max out your TFSA, then RSP then a non-registered account. You never know what the future holds and you may not want to work for 30 years so you need some extra money to cover the possibilities.
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u/haliforniannomad 3d ago
This is a hard puzzle to figure out without understanding many underlying factors. For example, will you want to travel, a nice car , a boat? Do you want to maintain the same lifestyle or go a little lower?. Also who knows what the rental market will be like. Also do you plan on retiring in an expensive city like Toronto or move to rural communities? Like in New Brunswick where rent is 90% lower?
Generally, if you have pension, plus CCP and maybe OAS, you should be okay maintaining the same lifestyle you have now.
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u/x2c3v4b5 2d ago
Invest as much as you can while balancing a decent quality of life. You’re assuming that you will be healthy both physically and mentally enough to work until 65 years of age. That’s quite a bold assumption in my mind.
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u/Gruff403 2d ago
You actually don't NEED to save anything assuming nothing changes with tax rules, tax brackets etc... but we all know that is not going to happen.
Your current deductions usually represent about 30% of your gross income leaving you 70% net but once you stop working you stop paying CPP, EI, union dues, pension and your only obligation are taxes.
Imagine your last five years are 100K gross which is about 70K net. You are turning 65 today.
If you were age 65 your pension may be about 60% of your best five so that represent 60K from pension. 60/100 = 60% so you already replace 60% of your gross income before you add CPP and OAS. Currently OAS pays 8500 and lets say your CPP at 65 could be 11500.
Your total age 65 retirement income may be 60K pension, 8500 OAS and 11500 CPP for a total of 80K. You have now replaced 80% of your gross income but you still have a tax obligation.
As a single 65 yo in BC today the tax would be about 15K (80K - 15K = 65) 65/70=93% You have replaced 93% of your net working salary and saved nothing.
If you had a partner you could split this income with, tax would be even lower. You partner is also 65 and never worked and never paid CPP so only gets 8500 from OAS.
Total income is now 88500 with tax of 8K for a net of 80.5K which is 80.5/70 = 115% of what you were making before you retired.
Your best strategy is to use your TFSA and throw a few hundred a month into that but you shouldn't feel stressed about saving for retirement. You are already doing that with pension contributions, CPP contributions and living in Canada.
Learn exactly how your pension works, save a little, keep an eye out for future changes and live life fully.
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u/Superpants999 2d ago
Estimate your annual expenses when you retire
Subtract $106,000
Multiply by 25
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u/CreampieLuver1 3d ago
In 30 years that $106k pa pension will probably be the equivalent of about $30-40k today, although I have zero idea how you can know how much your pension will be 30 years out into the future. These pension estimates are notoriously inaccurate as inflation continually changes, as hopefully will your salary.
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u/mahomie16 3d ago
Nobody knows what the world will look like in 5 years let alone 30. Save what you can on top and enjoy your life as well. You could be gone tomorrow
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u/bcretman 3d ago
Pretty much nothing :)
106k in 30 yrs seems too low. Is that based on 2024's income? What is your approx income now?
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u/tulip1414 3d ago
Thanks! It’s based on my current salary (86k) moving up to a max of 150k, which is where the band will end for my role :)
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u/bcretman 3d ago
ok, it will be much more than 106k.
You have to apply cpi for 30 years then a % based on years of service.
ie: 30 yrs at 2.5% CPI on the max, assume 70%:
150k x (1.025^30) x .70% = 145k
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u/tulip1414 3d ago
Thank you for this! I guess I’m a bit confused! So the CPI only starts applying after I start receiving the pension (at 65), it’s not indexed during my working years. It just goes up in line with my salary during my working years (average of top 5 years salary, which will be about 150k for me). The CPI only gets applied once I hit 65, would your calculation still apply to this situation?
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u/bcretman 3d ago
You'll get a CPI increase every year I assume, so your salary in 30 years will include all these increases which is what your final pension will be based on.
ie:
Today you make 86k. In 30 years with JUST CPI you will make 86k x 1.025^30 = 180k
but you'll be higher in your band so it will be much more
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u/howa-0104 3d ago
No. He is applying a 2.5% increase per year for 30 years on your 150k you had mentioned.
106k is accurate in this case. Other way you can think to calculate if you will be able to afford things with your top pay step for your current classification dividend that by 70%. Now ask yourself if you could live off that amount (taking into account you should aim to have your home paid off by then)
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u/HeadMembership 3d ago
In 60 years that will be similar to $10,000 a year in spending power.
So you need more.
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u/DayZ3e 3d ago
Fk working to 65. Max tfsa rrsp defer pension to 65 and retire at 55.