Your Retirement, From the First Dollar Saved to the First Dollar Withdrawn

Two questions come up again and again in our meetings. When should you start planning for retirement? And once you reach the finish line, when should you start drawing your pensions and spending down your savings?

Two recent Journal de Montréal articles by Emmanuelle Gril explored these questions with financial planners. Here is the essence — and our reading of it.

Saving: time is your greatest ally

There is no ideal age to start, but earlier is better. The longer your investment horizon, the more room you have to manoeuvre. A modest amount, saved regularly over decades, can grow substantially through compounding. Starting late demands far greater effort to reach the same goal.

For younger savers, the most effective approach often starts with concrete projects: a first home, a car, a trip. Two tools let you accomplish two things at once. The FHSA lets you save tax-free toward a first property. The RRSP is first and foremost a retirement vehicle, but it can also be used through the Home Buyers’ Plan (HBP).

And at fifty, is it too late? No — but you have to be realistic. It may mean postponing your retirement date, keeping part-time income, or revisiting certain choices. Ten or fifteen years from retirement, serious planning still leaves real room to adjust course.

Drawing down: the age you take your QPP pension tips the scales

Once you reach retirement, the question changes. It is no longer just how much you have accumulated, but in what order to use your sources of income.

The Québec Pension Plan (QPP) pension can be claimed as early as 60, but it is then reduced by 0.5 % to 0.6 % for every month of early uptake, down to a maximum reduction of 36 %. Conversely, every month you defer past 65 increases it by 0.7 %, up to 42 % at age 70. One key point: the adjustment is permanent — it applies for the rest of your life.

Hence the trade-off. Taking QPP early means drawing less from your investments, but the pension is smaller. Deferring it yields a larger pension, but requires spending down more of your investments in the meantime.

A simulation to see it clearly

Take someone whose QPP pension would be $1,581 per month at 65. Claimed at 60, it would be $1,000. Deferred to 70, the 42 % enhancement would bring it to $2,245. Here is the total pension collected depending on age at death.

Starting earlier gives you a head start, but the larger pension eventually catches up. In this example, the total collected with a pension claimed at 65 overtakes the age-60 total around age 74. A pension deferred to 70 overtakes the age-60 total around 78, and the age-65 total around 82.

The lesson is simple: there is no universal right answer. Your health, life expectancy, other income and personal preferences change everything.

Illustrative simulation in today’s dollars, before tax, excluding annual pension indexation and investment returns. Totals are calculated from the start of the pension to age at death. These figures are not a forecast.

What to keep in mind

• Most retirees prefer higher income early in retirement, while they are active. In that case, claiming QPP earlier can avoid drawing too heavily on investments.
• Your drawdown plan should account for all of your income sources: pension plans, Old Age Security (OAS), RRIF withdrawals, investment income.
• Certain strategies can reduce tax — for example, sharing the QPP pension between spouses or splitting pension income.
• Taxable income that is too high can trigger a clawback of part of your OAS. A well-designed drawdown plan can often avoid it.

A distinct reality for business owners

If you are in business, these two stages play out differently. Without an employer plan, building your financial security is up to you — often while the business consumes your time and capital.

At retirement, the choice between salary, dividends, personal savings and corporately held assets becomes a major lever in the drawdown plan. These decisions are best coordinated as early as possible.

Useful resources

The Autorité des marchés financiers offers the “Time is money” calculator, which illustrates the effect of time on your investments. Retraite Québec also provides tools to estimate your pension based on the age you claim it. And our own retirement projection calculator gives you a first picture in minutes.

Let’s talk about it

Whether you are at the start of your journey or a few years from retirement, a conversation helps take stock and build a plan suited to your situation. Book a meeting with our team — we guide you with rigour and care, every step of the way.

Sources: Emmanuelle Gril, Journal de Montréal, “À quelle étape de notre vie faudrait-il commencer à planifier notre retraite?” and “Quel est l’âge idéal pour commencer à décaisser ses économies de retraite?”. Content adapted for general information purposes.