Most career teachers in Ontario can look forward to a secure financial future. Their Teachers' pension will provide a predictable monthly income for life. Teachers' pensions include survivor benefits and a high degree of inflation protection.
Today, a typical career teacher retires at age 58 with an annual starting pension of about $46,000. This pension is reduced by about $5,300 at age 65 when the teacher qualifies for an unreduced pension from the Canada Pension Plan (CPP). A Teachers' pension, combined with income from CPP and Old Age Security (OAS), usually provides enough money for a comfortable retirement. Only members who began teaching after age 35, have lengthy breaks in service or anticipate heavy expenses in retirement may require substantial personal savings to supplement their Teachers' and government pensions.
Find out if you're on track for a comfortable financial future by following these four steps.
Step 1: Figure out how much you'll need in retirement
Conventional wisdom suggests you will need 70% of your pre-retirement income to live comfortably in retirement. However, your lifestyle, expenses, debt and assets – both before and after retirement – may dictate a need for more or less than that amount.
For example, expensive hobbies, dependent children and a mortgage will require a high income replacement ratio, perhaps as much as 100% of your salary at retirement. On the other hand, you may need as little as 50% if you retire soon after paying off your mortgage and children's education.
When calculating your retirement income needs, figure out what you will need as a percentage of your take-home pay. Take-home pay excludes deductions such as pension contributions, federation dues, employment insurance contributions and long-term disability premiums. Keep in mind that tax deductions are usually less in retirement to reflect your lower income.
Step 2: Estimate your Teachers' pension income
Once you know how much you need, figure out how much you'll get. The first step is to estimate your Teachers' pension income.
You can get a personal estimate online at iAccess Web, the secure members-only section of our website. Use the calculator, which is linked to your personal pension file, to generate and compare pension estimates based on various what-if scenarios.
Generally, you can estimate your Teachers' pension as a percentage of your pay by multiplying your years of credit in the plan by “2”. For example, if you retire with 29 years of credit, your Teachers' pension will provide roughly 58% of your average salary at retirement.
Step 3: Estimate your CPP and OAS pensions
Most teachers qualify for income from both CPP and OAS. The retirement pension payable from CPP at age 60 will be reduced by 30% to 36% (depending on when the reduced CPP retirement pension begins) from the unreduced amount payable at age 65.* Keep in mind that a Teachers' pension is reduced only at age 65 to reflect the pension plan's integration with CPP.
*CPP will be increasing the early retirement reductions gradually from 2012 to 2016. For more information visit www.servicecanada.gc.ca or contact CPP directly at 1-800-622-6232.
Most teachers are also eligible for full OAS, which provides as much as $6,480 a year, starting at age 65. OAS is clawed back beginning with total net income of about $69,562. The claw back doesn’t affect most teachers.
Contact the federal government for pension estimates or visit its website for more information.
Step 4: Compare what you need to what you will get
For the final step, tally your expected retirement income from the Teachers' plan, OAS and CPP. Convert this number to a percentage of your pre-retirement salary. Next, compare this percentage to the income needs you calculated in Step 1. The difference between your expected and desired income represents the gap you must fill from other sources. This could include income from employment, investment returns, RRSP savings or other sources. If you plan to work in education after retirement, be mindful of limits on how much you can work without affecting your pension. See Working after Retirement for information.