Personal Finance for Educators (Retirement Planning)
- Cassandra
- Mar 3
- 7 min read
Updated: Mar 10
Some classmates and I wanted to create a financial literacy presentation for educators regarding their retirement last semester. With that thought in mind I am launching a blog series "Personal Finance for..."; the posts will focus on specific situations, professions, etc... Some ides I have include Personal Finance for...:
Students
Self-employed individuals
18 year olds
When you get your first student job
When you get your first "real job"
Buying your first home
People that are starting to think about retirement
And many, many more...
Feel free to suggest other ideas through the contact us form here.
Educators (Retirement Planning)
For this post I will be focusing specifically on Retirement Planning for Educators. I will review questions about Educators pension plans, which registered account to use, and budgeting.
Ultimately, when exploring your retirement plans most educators (as long as they've reached the 85 factor) will likely be earning enough income in retirement to support the typical Canadian in their retirement. The reason I've used words like "typical" and "likely" are because there are obviously exceptions and at the end of the day it comes down to your personal situation.
There are a few things that you should consider when evaluating your financial health as you contemplate when you may be financially able to retire. Some questions to ask yourself are:
What will my life look like in retirement?
How much do I spend now (weekly, monthly, yearly)?
How much will I be spending in retirement?
What sources of retirement income do I have?
How much will I be earning from each source of retirement income?
What will my life look like in Retirement?
This (or some variation) was always the first question I would ask my clients when starting a "retirement planning meeting" and most clients started talking about money. But, that's not what I'm getting at with this question. Before you ever start to plan or enlist the help of someone you need to figure out what you want your life to look like in retirement so start dreaming! One thing I always tell my clients is that all of these dreams, thoughts, goals, etc... may change at some point and that's ok! Right now all we want is a starting point so think of everything and make an ideal vision of what your life will look like when you're retired! Some important questions to answer under this category that can help you paint a picture of what your life may look like (remember there are no right - or wrong - answers here) include:
Will you travel? If yes, how often? What types of trips (will they be expensive or more reasonably priced)?
If you want to travel what destinations are on your bucket list?
Will you have any pets?
Will you stay living where you are now or move? If you think you may move where might you go?
Will you own a car? lease a car? not have a car?
Do you have or do you think you'll have any dependents? What about grandchildren?
What will your day-to-day life look like? What will you eat? Will you be going to the mall to shop?
What will you do with any free time you have? Will you work? volunteer? What are your hobbies?
These are only some of the questions I would ask a client before delving into their financial plan for retirement and depending on how they answer any of these questions the following questions will change. The main objective with this step in the process is to get a very good idea of the life you want to live in retirement so we can then plan for it.
How much do I spend now (weekly, monthly, yearly)?
You may be thinking why does what I spend now matter if I'm asking you to help me plan my retirement and the answer is that it (along with the vision of how you want your retirement to look) will help determine how much you will likely spend in retirement. The first piece of homework I give to all of my clients is to make a budget because if you don't have a plan as to how you will spend your money how can you plan for your future or create logical financial goals for yourself. I have created multiple budgets for myself over the years; sometimes I've used apps, paper, excel, created my own, etc... but the best one and the one that seems to work best for everyone is the FCAC budget tool. Their tool (found here) is amazing because it has all the categories so it's virtually impossible to "forget" something which greatly improves the accuracy of your budget. The tool starts by asking some demographic information such as marital status, age, employment, etc... it asks this because it compares your spending to the typical spending of people in similar situations and tells you if you're above or below the average spending for each category. Then it asks you to input your income and savings; it guides you along the way and has multiple options so you likely won't forget anything. Perhaps the most difficult part of budgeting is to enter your expenses because most people forget things. However, with how this budget tool is formatted it makes it nearly impossible to forget things; it even has a category for car maintenance and you can adjust the frequency to be annual/semi-annual for less common purchases. I would recommend going through each category individually over the course of at least a month (you can also review your bank account and credit card transactions) so that you don't forget anything. Once you've filled everything out you can click "next" at the bottom of the page and it will take you to your results page. On the results page it will compare your spending to that of "Average Canadians". Now that you have a complete picture of your spending now I would recommend you create a budget of how you'd like to spend your money moving forward. This isn't needed to plan for your retirement but I would recommend it nonetheless because it will likely force you to cut back on any frivolous spending.
How much will I be spending in retirement?
Now that we have a good picture of what you want your life to look like in retirement and what you spend now we can move forward with planning your finances for your retirement. There's a couple rules of thumb when helping clients plan for retirement they are:
Assume retirees will be spending 70 - 80% of what they spend now in retirement to maintain the same lifestyle. This isn't always the case but it's a starting point and we can adjust expectations based on what your vision is of your retirement!
If you are spending 4% or less of your investments in retirement your assets are sufficient to support you in retirement.
I typically like to start around the 75% mark (of current spending) for helping to determine what income retirees will need. Then I adjust based on what they have as a vision for their retirement. For example, if person A is planning on moving in with her child, not travel, and will have a pet cat their expenses will likely drop to lower than 70% in retirement. However, if person B is planning on staying in their existing home, getting a dog, traveling twice a year (hiring a dog sitter) to nicer 4 or 5 start resorts they will likely be spending more that 80% of their current expenses in retirement. Once you've determined how much you think you'll be spending in retirement (feel free to use the same budget tool to help you do this) it's time to determine if you'll be earning enough to support yourself.
What sources of retirement income do I have? How much will I be earning from each source?
As an educator in Ontario you would have access to the following income:
Pension
You would've either been enrolled in the Ontario Teacher's Pension Plan (OTPP); you can see the details of the OTPP here. Alternatively, you may have been enrolled in the Ontario Municipal Employees Retirement System (OMERS); you can find the details for it here. The only reason you would've been enrolled in the OMERS pension is if you agreed to enrol in it if you were a supply teacher. Under most circumstances you would've been enrolled in the OTPP. The OTPP is a Defined Benefit plan which means your pension income would be based on the following formula:
2% x CPP Credit (years of service) x average of your highest 5 years of earnings or YMPE = Annual Pension Income
Once you are able to login to the OTPP website you will be able to use the Pension Income Calculator (you can find all the OTPP calculators here).
Canadian Pension Plan (CPP) & Old Age Security (OAS)
The Canadian Pension Plan is a pension plan that you contribute a portion of your income to along with your employer. Whereas, the Old Age Security is a tax-funded pension plan that provides income to Canadian Residents. To see your details about your CPP and OAS eligibility and to calculate your anticipated earnings you need to login to your My Service Canada Account found here.
Individual Savings
In addition to your pension income from your private pension(s) (OTPP/OMERS/any other employer pensions) and your government pensions (CPP & OAS) you will hopefully have some savings of your own to help fund your retirement. Most Canadians will have an RRSP, TFSA, and maybe Non-Registered investments. There is a strategy for how to draw these investments down because they do have tax implications so I would recommend educating yourself or consulting with a tax expert to make sure you draw down your investments in the best possible way for you.
In addition to the above my classmates and I prepared a presentation and video to other teacher candidates in a professional development lesson on preparing for retirement as an educator in Ontario.
Here is the slideshow:
Additionally, here is a video of our presentation:
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