Preparing your finances for retirement

Retirement is an exciting time and something many people look forward to. It can also be a confusing and overwhelming time—there’s a lot of information, advice and options out there. To help Albertans transition into a new phase of their life and prepare for retirement, we created a guide to retirement. This guide goes over some of the things to consider when you retire including drug, health, optional dental and travel benefits.

Financial planning is a large component of preparing for retirement for Albertans and includes retirement health benefits. It’s never too early to start thinking about your retirement—knowledge is the key to successful retirement planning. There are various ways to improve your financial situation and prepare for future healthcare and long-term care costs.

The average age of retirement for Canadians is 65 years old, and 75 per cent of Albertans aged 65 or older develop, on average, at least one chronic health condition. While provincial coverage covers many health benefits in retirement, it’s important to consider your lifestyle and individual needs when it comes to coverage for prescription drugs, optional dental, extended health and travel benefits. We recently spoke with experts at ATB Financial and our benefit plan specialists to provide answers to some of the most common questions about financial planning for retirees.

How much do I need to save for retirement?

The basic rule of thumb is that you’ll need about 70 per cent of your current income to maintain your current standard of living in retirement. So, if you make $100,000 per year now, you should plan to have about $70,000 (in today’s dollars) per year in retirement. You’ll have to adjust for inflation, so that specific dollar amount should be higher at retirement.

Even if your house and vehicle are paid off and you don’t have the cost of commuting to work, such savings are often partly offset by increased spending on other things like golf, travel or other interests that keep you blissfully busy.

Can I save for retirement using a Tax-Free Savings Account (TFSA) instead of a Registered Retirement Savings Plan (RRSP)?

Absolutely! Just keep in mind that, while both RRSPs and TFSAs are registered savings plans, they have different contribution limits and different ways of providing tax advantages. Your contributions to an RRSP—within your contribution limit—are immediately deducted from your taxable income. The advantage is that when you withdraw and pay tax on your savings later, you’re likely to be in a much lower income tax bracket. With a TFSA, you pay tax on your contributions in the year you make them, but both the interest and principal are exempt from regular income tax when you withdraw money. All other things being equal, contribution limits for an RRSP are usually substantially higher than contribution limits for a TFSA. You can also use a non-registered cash account to save for retirement. Check out this helpful infographic to learn more about the three types of accounts. It’s a good idea to talk to your investment advisor before deciding which registered saving plan works best for your situation. Learn more about investing for your retirement on ATB’s website.

What can I do now to help ensure I retire comfortably and on time?

Whether retirement is just around the corner or it’s many years away for you, it’s never too early to start planning. The earlier you start saving and investing, the more time you have to grow that money for your retirement. The following are some tips to help ensure you retire comfortably and on time:

• They can help you set up a customized investment plan or simply point you in the right direction to help you meet your savings goals.
• This might sound intimidating, but it’s an excellent tool to help you feel confident that you’re on the right path to turning your financial aspirations and retirement dreams into achievable goals. A three-year study of 15,000 Canadians commissioned by FP Canada found that those with financial planning reported significantly higher levels of financial and emotional well-being and felt more confident they could deal with financial challenges in life. Check out our post on saving strategies and ATB’s guide for retirement planning in Alberta for details on how to create a plan to help set and reach your saving goals.
• How you’re spending your money today has a direct impact on what your retirement lifestyle will be like. A budget can help you balance your income with your savings and expenses to take control of your finances and reach your retirement goals. Read more on what to know before you budget and how to build a budget and stick to it.
• Having a solid plan to get out of debt can help relieve stress and support your financial goals—check out some steps and strategies for personal debt repayment. Deciding whether to pay off debt or invest for your retirement? Compare the interest rate on your debt with the expected return on your investment. As a rule, you should put your money towards whichever rate is higher—investing and paying down debt simultaneously doesn’t really work.
• This can help you handle expenses in unexpected situations—such as vehicle maintenance, job loss or health issues—without getting into debt or dipping into your retirement savings. Your emergency fund should provide you with enough money to cover your living expenses for three to six months. Find out if your emergency fund is enough for the unexpected.
• Inaccurate credit information might be preventing you from getting the best interest rates, leaving you with less money to invest in your future. Regularly review your credit report and resolve any possible issues. Learn more about your credit score.

What can I do to improve my credit score?

If you need to improve your credit score, you should focus first on two things: paying your bills on time and in full, and never exceeding your credit limit.

Your past payment history makes up 35 per cent of your credit score. Making a payment even one day late will hurt your score. If you’re paying online, make the payment at least three banking days before it’s due to allow time for processing. You can also set up a small automatic payment to your card issuer each month to ensure you never forget to pay at least the minimum required. Overall, the more you pay off, the less interest you pay and the faster you pay off any debt.

Making regular purchases with a credit card establishes positive usage history, but the amount of credit you owe makes up 30 per cent of your credit score, so it’s important to never exceed your credit limit. If you’re close to maxing out your card, make sure you pay more than the minimum or the interest due could push you over your limit. Going even $5 over your limit could lead to a costly fee from your credit card company and hurt your score every month it happens.

Other credit tips to help you avoid debt and poor credit scores include the following:

• Periodically check your score to safeguard against mistakes and credit fraud.
• Don’t apply for store credit cards, which often have high interest rates and can lower your score.
• Don’t lease a car, sign up for a new phone and apply for a loan all in the same month—applying for too much credit at once is seen as a sign of financial trouble by the credit bureau.
• Keep in mind that pre-approvals count against your credit score.
• Make your payments even if you’re in a dispute with a lender—a missed payment can hurt your score and is hard to fix.
• Keep a low-interest credit card open and make periodic purchases rather than closing the account as the zero-balance card can help improve your score.
• When closing an account, get it in writing that the account is closed with a zero balance.

What types of incomes are available when I retire?

In Canada, there are two main government-sponsored programs that help retired residents: the Canada Pension Plan (CPP) and the Old Age Security (OAS) pension. CCP payment are only available to Canadians who’ve made contributions, and the rates vary based on your work history and the date you start collecting your benefit. In comparison, OAS is available to all Canadians starting at age 65. Additionally, low-income seniors can also receive the OAS Guaranteed Income Supplement (GIS). While both CPP and OAS will boost your retirement income, they alone likely won’t meet the amount needed to maintain your current standard of living in retirement. As of 2022, for example, the average total an individual aged 65 and older receives per year is $16,140 from OAS and CPP benefits. Therefore, you’ll still need some extra savings.

If you have an employer-sponsored pension plan, review the details of your plan to determine what type of pension you have—either a defined benefit plan or a defined contribution plan—and how much you can expect to receive when you retire. Don’t forget about any pension income from previous employers in addition to your current employer. Any time before you retire is a good time to consider maximizing investing and savings options available through your employer’s savings plans, especially if your they offer matching contributions.

Since your employer pension and government benefits alone aren’t likely enough to fund your retirement goals, it’s important to have additional savings such as an RRSP or TFSA. These savings will give you the opportunity and flexibility to spend on more than just your basic needs in retirement.

In terms of health benefits, what happens when I turn 65?

Prior to turning 65, each Albertan can expect to receive information on Seniors Financial Assistance programs from the provincial government. This includes information and application forms for programs like the Alberta Seniors Benefit and Dental and Optical Assistance for Seniors. Regardless of whether you think you qualify, all Albertans turning 65 are encouraged to complete the Seniors Financial Assistance application as eligibility can change from year to year and new programs or services can become available.

One particularly program to note is Coverage for Seniors, administered by Alberta Blue Cross^® on behalf of the Government of Alberta. This program provides seniors with premium-free coverage for prescription drugs and other health-related services such as ambulance, diabetic supplies and chiropractic services. All Albertans 65 years of age and older are eligible for this program regardless of financial status. It’s important to ensure you’re properly enrolled for the Coverage for Seniors program to avoid having to pay out of pocket for prescription drugs and other benefits when you turn 65.

Are there costs associated with government-sponsored health plans when I retire?

While registered Albertans are eligible for coverage of medically necessary hospital and health care services through the Alberta Health Care Insurance Plan (AHCIP), not everything becomes free when you turn 65. There is coverage available through various government plans, but—like most health plans—some have co-payments and maximum allowances for certain benefits. A co-payment is an amount you may need to contribute towards a health care service or product claim. 

For example, as of 2022, the government-sponsored Coverage for Seniors program provides premium-free coverage for prescription drugs and other health-related services such as diabetic supplies and chiropractic services. Coverage for prescription drugs requires a 30 per cent co-payment to a maximum of $25 per claim for most drugs. Diabetic supplies are covered up to a maximum of $2,400 per eligible person and chiropractic services are covered up to $25 per visit to a maximum of $200 per person each benefit year.

Low-income seniors who meet certain financial criteria may be eligible for government-sponsored programs like the Alberta Seniors Benefit, which provides a monthly benefit to assist with living expenses, or Special Needs Assistance for Seniors for financial assistance of some appliances and specific health and personal supports. The Dental and Optical Assistance for Seniors program provides financial assistance to eligible seniors with low to moderate income for basic dental and optical services.

If you’re looking to retire early, the government-sponsored Non-Group Coverage program provides supplementary health benefits, for an economical monthly premium, to AHCIP-registered Albertans under 65 and their dependents for a some of health-related services not covered by the AHCIP. A premium is the amount you pay for your health coverage plan.

Depending on your individual needs and age of retirement, provincial coverage may not be enough when you retire. Some things like dental and vision benefits or massage and chiropractic services that may be currently covered under your employer benefits plan could become out-of-pocket expenses for you when you retire. Furthermore, the Coverage for Seniors and Non-Group Coverage programs don’t provide travel insurance. In Alberta, there are a range of plans available to purchase from benefit providers to supplement a government-sponsored health plan and help cover things like travel insurance, paramedical expenses and prescription drug, dental and vision coverage.

What is the cost of supplementing the government-sponsored health plans?

When looking for a retirement benefits plan to supplement government-sponsored plans, there are a few things to consider:

• Will your current medications be covered?
• Do you require dental maintenance and dentures?
• What paramedical and medical devices do you need?
• How much traveling do you plan to do?
• Will you be transitioning off an employer health plan?

In Alberta, premiums for personal health benefit plans typically range from $150 to $200 per month. Rate increases depend on the provider—it can be done annually or every few years.   

Alberta Blue Cross^® has flexible plan options that provide you and your family with the coverage you need. For example, our Retiree plan is available to those over 50 years old, Blue Choice^® plan is available to those under 64 and our Blue Assured^® plan is available for all ages. Learn more about our personal plans.

If you’re transitioning off a benefit plan, your employer may provide coverage after retirement or offer a corporate discount for a retirement health benefit plan. For example, employees who have Alberta Blue Cross^® coverage are eligible for a discount on our Retiree plan. It’s important to explore your options early as you typically need to apply for an individual benefits plan 30 to 90 days in advance of your employer health plan ending. For example, our individual plans require applicants to apply within 30 to 90 days of leaving a health plan. Learn more about transitioning from an employer health plan.

Additional reading

• Planning for your retirement
• The Complete Guide to Retirement Planning in Alberta by ATB
• Your retirement financial checklist from the Financial Consumer Agency of Canada
• Canadian Retirement Income Calculator
• Preparing your wellbeing for retirement
• Preparing to travel when you retire
• Living or travelling abroad when you retire from the Financial Consumer Agency of Canada
• Collecting your Canadian retirement benefits living abroad

Financial advice

For financial advice, please contact ATB Financial’s Eric Chute:

Eric Chute (He/Him)
Business Development Manager
Everyday Financial Services
780-668-7330
echute@atb.com