Do You Need Savings in Addition to a Government Pension Like OMERS?
When planning for retirement, many Canadians rely on a government pension like OMERS (Ontario Municipal Employees Retirement System) as their foundation.
Do you need savings in addition to your government pension to maintain the lifestyle you want?
A buddy called me from his car and said, “I’m driving. Will I get to my destination on time?” I asked, “Where are you going and where are you now?”
It’s the same with the question of whether retiring with just your pension is enough. Well it depends on your lifestyle, your goals, and whether you want the freedom to enjoy big-ticket items, like vacations or regular nice dinners.
The answer depends on your vision of retirement.
If your goal is to replace 70-80% of your working income, you’ll need to fill the gap between your pension and that target with personal investments like RRSPs, TFSAs, or non-registered savings.
In my latest video and podcast episode, you’ll see examples of people with different investment setups to help you discover what’s right for you.
You’ll learn:
- What is the formula to know how much your government pension will be?
- What is the rule of thumb for your pension with 30 years service?
- How much do you need to retire with the lifestyle you want?
- 10 examples of a retirement plan with a full pension.
- Do you need to invest more conservatively after you retire?
- How does a Financial Plan become the GPS for your life?
OMERS Rule of Thumb
- Pension = 2%/year x average of best 5 years.
- Integrated with CPP
- Less: Spousal deduction, typically 5-10%
Rule of thumb: OMERS + CPP = Half your salary.
Cash Flow – Before & After Retirement
Advantages of Own Investments
Tax planning:
- Government pension is fully taxable.
- Taxable income & cash income can be very different.
Lump sum spending freedom:
- Government pension allows nothing for lump sums.
- Free to redeem lump sum at low/no tax from TFSA or non-registered investments.
- E.g., Big trips, new car, home renos, buy new home.
Do you need savings in addition to government pension like OMERS?
Short answer: Yes.
Exception:
- Everyone in household has government pension.
- All work 30 years in pension (or close).
- You are comfortable with a minimal/passive retirement.
Stocks are more consistent than bonds after 20 years
Risk Tolerance – A Learned Skill
The ability to do nothing when your investments go down.
Your Financial Plan is the GPS for Your Life
- Financial Independence.
- Life feels different when you are financially independent.
- Make it your goal – Not what other people might want.
- Think long-term. Start early.
- “Interactive Financial Plan” – Look at many life options & see what you have to do to get there.
- Very comfortable Retirement Plan:
- At least 10-20% ahead of your goal.
- 8%/year investment returns & full government pensions.
Ed
Planning With Ed
Ed Rempel has helped thousands of Canadians become financially secure. He is a fee-for-service financial planner, tax accountant, expert in many tax & investment strategies, and a popular and passionate blogger.
Ed has a unique understanding of how to be successful financially based on extensive real-life experience, having written nearly 1,000 comprehensive personal financial plans.
The “Planning with Ed” experience is about your life, not just money. Your Financial Plan is the GPS for your life.
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Hi Cory,
It is in the video. I will look at adding it to this blog post.
Ed
HI Jean,
I don’t understand your point. My post is about people with a generouas defined benefit pension similar to a government pension. I compare retirement plans with people without pensions to show the effect of the pension.
Thanks Ed, this was really helpful! Would it be possible to get a copy of the budget spreadsheet you used showing the before and after retirement spending? Thanks!
Some folks who are in a hurry to read/hear you on this blog, only at the beginning of your script, just may not catch the distinctions between employee living in Ontario, but working for different non-profit or private sector.
Hi Jean,
OMERS is still the pension for Ontario municipal employees. It includes active employees. We have a bunch of clients that are working and part of OMERS. I just did a talk with 25 municipal employees in OMERS.
From OMERS web site: “United by purpose since 1962 — we are OMERS. One of Canada’s largest defined benefit pension plans, we are stewards and guardians of the retirement income for more than half a million active, deferred and retired Ontario municipal employees.”
You are right that provincial government employees have a different pension, but OMERS is still the pension for municipal employees.
Ed
You need to emphasize OMERS pension is ONLY for former employees (or spousal survivor of a former OMERS employee) who worked for an Ontario municipality and paid into that pension plan as an employee at that time.
Ontario provincial govn’t employees have a different named pension.