There are various sources of retirement income. It is important to choose a plan that’s most appropriate for you, depending on your age, needs and level of involvement in financial decisions. Retirement income is often generated through a combination of plans that collectively help to ensure your financial safety and security.

Employer-sponsored retirement plans

• Defined Benefit Plan: This plan pays a specific amount of pension income based on a formula that factors in your years of employment and salary. Defined Benefit Plan structures vary from company to company.
• Defined Contribution Plan: This plan allows both you and your employer to make specific annual contributions to an account based on your earnings. At retirement age, the accumulated value of your plan must be used to purchase either a life annuity or a Life Income Fund. Unlike a Defined Benefit Plan, a Defined Contribution Plan depends on the success of your investments and does not guarantee a specific level of pension at retirement.
• Group RRSP: Employees can choose to contribute to an employer-sponsored RRSP fund. Group RRSPs are flexible because employees are typically offered a choice of how the funds are invested and how much to contribute.
• Deferred Profit Sharing Plan (DPSP): An arrangement where an employer may share with employees the profits from the employer’s business. Employees do not make contributions to the plan. DPSPs can be used as a supplement to a company’s Group RRSP or as a company pension plan.

Government pensions

• Canadian Pension Plan (CPP): CPP and the Quebec Pension Plan (QPP) are Canada’s major pension plans, providing regular payments to people in retirement who have contributed to either of these plans over the years.
• Old Age Security (OAS): Funded by the federal government with general tax revenues, this provides a monthly income security benefit based on your age and the amount of time you’ve lived in Canada. Benefits include the basic OAS pension and the Guaranteed Income Supplement (GIS).

Your own savings and investments

• Registered Retirement Savings Plans (RRSP): An RRSP is a government registered account that holds investments, allowing them to accumulate in value tax-free until withdrawal at retirement. You may own as many RRSPs as you wish, although it's advisable to have fewer for ease of management and to minimize fees. RRSPs provide a tax-sheltered environment where investments can grow faster. Outside an RRSP, investments are subject to being taxed on gains.
• Tax Free Savings Account (TFSA): TFSA is a registered savings account that allows you to earn investment income tax-free inside the account. Contributions to the account are not deductible for tax purposes, and withdrawals of contributions and earnings from the account are not taxable. Each year you are allowed to contribute at least $5,000. Withdrawals made in the previous year are added to your contribution room for the current year. Unused contribution room from the previous year is also added to the contribution room for the current year.
• Non-Registered Investments: These are savings and investments you have that are non-tax-sheltered, which can include money held in savings accounts, GICs, mutual funds, stocks and bonds.

Income during retirement

At age 71 you need to convert your RRSP savings into a source of income to sustain yourself financially throughout retirement. There are a number of retirement income options available. You may prefer to choose an RRIF, annuity, or to withdraw your savings depending on your goals, income needs and the value of your RRSP.

• Registered Retirement Income Fund (RRIF): An RRIF is a plan in which your RRSP investments are converted into an income stream to last throughout your retirement years.
• Annuity: An annuity is a purchased contract that provides a constant and guaranteed stream of payments at regular intervals for a fixed period of time. There are three main types of annuities:
• Straight-life annuity: This annuity provides fixed regular payments for as long as you live.
• Joint-and-last-survivor annuity: Geared towards married couples, this annuity will pay a set amount throughout both spouses’ lifetimes.
• Term-certain: This annuity specifies that payments must be paid out until age 90. If you die before you reach 90, payments to your spouse will continue until the year you would have reached 90 years.
• Cash in your RRSP: Cashing in your RRSP allows you to withdraw the savings. But be aware: you pay tax on the full amount.

Your estate

In addition to saving and investing your money for retirement, planning your estate is also as important. Proper estate planning includes preparing a will, tax planning, signing a power of attorney and purchasing life insurance.

• Will: Your will is a precise legal document that defines the distribution of your estate. Without a will, upon your death the provincial government decides how your estate is distributed and divided.
• Tax Planning: Proper tax planning can result in reduced estate taxes. Financial advisors, lawyers or accountants can recommend tax planning strategies.
• Power of Attorney: This is a legal document that authorizes a person, or persons, to make financial or health care decisions on your behalf should you ever become incapable of making them yourself.
• Life Insurance: This can help provide your family with replacement income after your death, as well as cover your final expenses and any debts. There are different types of life insurance, including term, permanent and universal.

There is a lot to think about before you retire. Research your options carefully to ensure your financial health throughout your retirement years.