The Plan For You

OMA Insurance has identified four phases of the typical physician lifecycle that are relevant for shaping your retirement plans over your lifetime, and built the Advantages Retirement Plan™ to meet you at every step of your journey:

  • Getting started: Students approaching residency, residents, fellows, or physicians new to independent practice
  • Getting serious: Physicians who have been practicing independently for 3 years or more
  • Getting ready: Established physicians who are in the last decade or so of working full time
  • Approaching and in retirement: Physicians who are settling into life at a different pace as they transition into full retirement and enjoy this new phase

Underpinning each of these four stages is the reality that most physicians do not have the backstop of a defined benefit or other employer-sponsored pension plan. As a result, many must find ways to convert the career investment they’ve made into financial capital that will last a lifetime. The Advantages Retirement Plan™ can help you create retirement income strategies that incorporate an understanding of physicians’ financial realities and desires by life stage. And of course, we’ve made the plan available to spouses/common-law partners, too.

Educational articles and tools have been integrated into the plan’s online platform to help you prepare for your retirement. You can also seek additional education and support from the OMA Insurance team.

Select your age range

Getting Started
25-34
  • Situation

    The journey through medical school and residency is an important step towards your medical career, with many physicians transitioning into practice in their 30s. Physicians spend more time in school — and accumulate more student debt — than the vast majority of Canadians do. The median debt load upon graduation is ~$100,000[1] and often grows during residency.

     

    While these extra years of school and residency can translate into a successful and noble career that comes with higher expected earnings over time, they can also mean a slower than average start on long-term financial planning goals, such as saving for retirement.

     

    Because the transition to practice may only happen when you are in your 30s, early-practice earnings may need to fulfill a lot of roles: debt repayment, life goals such as buying a house and starting a family, and saving for long-term needs, including retirement.

     

    This means that residents, fellows, and early-stage physicians often need to find a financial balance among many competing motivations and demands for relatively scarce dollars.

     

    But that doesn’t mean that retirement savings must remain on the back burner during residency and the first years of practice.

     

    In fact, starting to save and plan for retirement when you are young allows you to take advantage of an asset that diminishes as you age: the power of time, which allows your investment returns to grow via compounding. Even if you can’t start saving in your late 20s, ensuring that you start as soon as you’re able can pay lifelong dividends by increasing the amount of your savings over time. That’s why OMA Insurance has designed the Advantages Retirement Plan™ to meet the needs of the physician community at every life phase, including for the earlier years of your career.

     

    When you’re finishing school, transitioning through residency, and first establishing your practice, your retirement planning priorities may include:

     

    • Finding a balance between repaying debt, spending, and saving for long-term goals — including retirement
    • Beginning to accumulate savings even at a modest level, while making a plan to increase these savings over time
    [1] The Association of Faculties of Medicine of Canada (2019). Graduation Questionnaire National Report 2019, p. 43. Retrieved from https://afmc.ca/sites/default/files/nationalreports/2019_AFMC_GQ_National_EN.pdf
  • Why the Advantages Retirement Plan™ works for you

    The Advantages Retirement Plan™ is designed to allow those approaching residency, residents, fellows, and new-in-practice physicians to start planning for retirement sooner rather than later.

     

    The Advantages Retirement Plan™ allows you to set income and retirement savings targets to ensure that planning for retirement doesn’t get left behind even while your primary focus is on establishing your career and practice.

     

    Features of the Advantages Retirement Plan™ designed specifically to meet the needs of the physician community in the “Getting Started” phase include:

     

    • Low contribution requirement: You can get started with as little as $50/month. Without being locked into high required contributions, you can kickstart your retirement planning while also balancing your other financial needs and priorities. You can also adjust your participation in step with any income fluctuations.
    • Low fees: The Advantages Retirement Plan™’s fees are comparable to the costs of a large pension plan, and are two to three times lower than what typical Canadian investors pay.[2] Lower fees ensure that more of your savings goes to your retirement income and not to management.
    • Simplicity and flexibility: Participating in the plan is easy. The Advantages Retirement Plan™ incorporates a self-serve, online approach to plan participation, while allowing you to maintain your freedom to adjust how your dollars are allocated within your Advantages Retirement Plan™ savings accounts.
    • A savings plan that grows with you: A unique feature of the Advantages Retirement Plan™ is the built-in “automatic escalation” feature, which allows your savings rate to incrementally ramp up over time as your income increases, while still allowing you to retain control.
    [2] Morningstar, “Global Fund Investor Experience Study” (2019)
  • The plan in action: Saving earlier

    With the Advantages Retirement Plan™, you can start off saving as little as $50 per month. As you pay off student debt and your earnings increase, you can gradually increase your savings and meet your retirement goals.

     

    Behavioural research shows that most of us tend to put off saving for the future.[3] While it might be hard to see the effects of such a delay at the time, deferring retirement savings can cost you a great deal. In the example below, starting to save five years earlier – age 29 rather than age 34 – means a difference of over $1 million to draw retirement income from by age 70. If you subtract the additional ~$360,000 the earlier saver contributes to their retirement plan, this is still a difference of ~$737,000 for no additional cost. Younger physicians often have student debt. This likely means that if you are a younger physician, you have less capacity to save in your early years as a physician, so the example below starts you off at $100 per month for the first three years of saving.

     

    Illustrative example[4]

    • Savings of $100 per month starting at age 29 or age 34 for three years
    • Savings gradually increase over five years to max out TFSA and RRSP contribution room[5] (after 3 years of saving at $100 per month) to age 65
    • Winds down work to part time from age 66 to 69 and halves annual contribution amount during these years
    • Retirement at age 70[6]
    • Gross investment returns at 5% per year[7]
    • 2% annual inflation
    • Fees of 0.6% of assets[8] (+HST) plus $10 per month (+HST) (similar to the cost of a large pension plan)[9]

     

    Advantages Retirement Plan™ in action: Saving earlier for ages 25-34
    Starts earlier Starts later Difference
    Starts saving at Age 29 Age 34 5 years
    Projected nest egg size at age 70 $3,887,259 $2,786,892 $1,100,367

     

    [3] See, for example, Brigitte Madrian, “Research Summary: The Determinants of Individual Saving and Investment Outcomes,” National Bureau of Economic Research Reporter (No. 3, 2010).
    [4] Other assumptions include the following: 1) Earnings grow by inflation; 2) Corresponding annual savings grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [5] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [6] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [7] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [8] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST).
    [9] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
Getting Serious
35-49
  • Situation

    Once your practice is established, your earnings can climb rapidly as you convert the human capital value you’ve built up through school and residency into financial capital. At the same time, physicians in this phase of life often experience rapid overall change, both professionally and personally.

     

    Early to mid-career physicians often find themselves making tough financial decisions. Early-career physicians may need to make decisions with significant financial implications, such as whether and when to incorporate your practice. Mid-career physicians may need to determine if their current savings rates and amounts are sufficient to achieve their desired retirement date and income level — and may need to reorient and adjust if not.

     

    By helping create a holistic picture of expected income in retirement and allocating a portion of earnings to retirement savings, the Advantages Retirement Plan™ can help meet the retirement needs of the physician community. As your earnings increase over time, you can adjust your participation in the Advantages Retirement Plan™ to help ensure your desired retirement future becomes a reality.

     

    As you’re transitioning through the early years of practice to your peak earning years, your retirement planning priorities may include:

     

    • Increasing your savings rate so it will be adequate to meet your retirement goals. Many physicians will want to move towards maximizing their TFSA and RRSP contributions, and those of their spouse/common-law partner, during this period.
    • Starting to think about retirement income planning as your specific retirement goals and timelines come into clearer focus — including an increasing interest in how your savings will be converted to income in retirement
    • Minimizing investment costs to ensure that more of your saved earnings contribute to your retirement income
  • Why the Advantages Retirement Plan™ works for you

    Features of the Advantages Retirement Plan™ designed specifically to meet the needs of the physician community in the “Getting Serious” phase include:

     

    • Expertise and governance: The Advantages Retirement Plan™ offers you investment options provided by some of the world’s leading asset management and annuity firms. The Investment Committee has selected BlackRock and Brookfield Annuity to offer products that will serve your retirement planning needs. The role of these providers is strictly to manage plan members’ investment assets and underwrite the annuities to help members achieve their retirement goals.
    • Simplicity and flexibility: OMA Insurance has made participating in the plan easy for you — incorporating a “self-serve,” online approach to plan participation — while allowing you to adjust how your future contributions are invested through the Advantages Retirement Plan™ to build and generate retirement income
    • Retirement income focus: You can use the Advantages Retirement Plan™ online platform to identify your target income in retirement, and incorporate retirement income sources including government benefits (such as Canada Pension Plan and Old Age Security), so that you can develop a more holistic picture of retirement
    • Low fees: The Advantages Retirement Plan™’s fees are comparable to the costs of a large pension plan, and are two to three times lower than what typical Canadian investors pay.[9] Lower fees ensure that more of your savings goes to your retirement income and not to management.
    • A mix of options for retirement income certainty: The Advantages Retirement Plan™ allows you to begin allocating funds to options for income certainty in retirement, through the purchase of deferred income annuities within your RRSP. This guaranteed lifetime income program will be coming soon after the plan has launched.
    [9] Morningstar, “Global Fund Investor Experience Study” (2019)
  • The plan in action: Impact of fees

    With the Advantages Retirement Plan™, you pay lower fees than you would with the average Canadian mutual fund[10] and can end up with more than $1 million in additional retirement income as a result of lower fees.  

     

    The difference between paying average fees and low fees could cost you over $1 million in retirement income. In the example below, the physician paying low fees ends up with over ~$650,000 more than the physician paying average fees by age 70, and more than $1 million by age 85.

     

    Illustrative example[11]

    • Physician with earnings of $200K before tax and after overhead
    • Saves 15% of earnings from age 40 to 65
    • Has already saved $200K prior to age 40, and transfers the $200K into the Advantages Retirement Plan™
    • Maximizes and uses RRSP contribution room each year, created by taking salary in the previous year, to save for retirement[12]
    • Winds down work to part time from age 66 to 69
    • Full retirement at age 70[13]
    • In retirement, draws down enough from their account to replace 60% of their pre-retirement earnings (averaged over last 5 years before age 66 when part-time work starts)[14]
    • Gross investment returns at 5% per year[15]
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Impact of fees for ages 35-49
    Low fees Average fees Difference
    Fee structure 0.6% of assets[16] (+HST) and $10 per month (+HST)
    (similar to the cost of a large pension plan)[17]
    2.1% of assets (the cost of an average Canadian mutual fund)[18] About 1.5% per year
    Projected nest egg size at age 70 $2,676,504 $1,982,117 $694,387
    Projected retirement assets left at age 85 $1,125,305 Money runs out at age 83 $1,125,305 (plus approximately 2 additional years of retirement income)
    Projected retirement assets left at age 90 $107,490 Money runs out at age 83 $107,490 (plus approximately 7 additional years of retirement income)

     

    [10] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
    [11] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives some enhanced CPP benefits; 2) Physician receives no Old Age Security (OAS); 3) Contributions are made regularly throughout the year; 4) Earnings grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [12] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [13] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [14] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [15] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [16] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [17] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
    [18] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
  • The plan in action: Taking maternity and parental leave

    With the Advantages Retirement Plan™, you can achieve your retirement goals even with taking time off from being a physician for important life events such as having children. Even if you take the maximum paid maternity leave and extended paid parental leave, and save less than the maximum TFSA and RRSP contribution rooms allowed during your leave, you can still achieve your target retirement income.

     

    Many physicians may take maternity and parental leave if they have children. In the example below, a female physician takes 15 weeks of maternity leave and 61 weeks of extended parental leave per child, has two children, and still achieves retirement readiness with the Advantages Retirement Plan™. The difference between paying average fees and low fees could cost you over $1 million in retirement income. In the example below, the physician paying low fees ends up with ~$700,000 more than the other physician paying average fees by age 70, and over $1 million by age 85.

    Illustrative example[18]

    • Female physician in residency with earnings of ~$71,224[19] at age 30 (before tax and after overhead starting); earnings increase over time, up to $200,000 at age 36 (before tax and after overhead)
    • Saves 15% of earnings from age 30 to age 65
    • Takes maximum maternity leave (15 weeks) twice, for first pregnancy at age 33 and for second pregnancy at age 37. During maternity leave, gets a benefit rate of 55%, up to a maximum of $562/week as of 2019[20]
    • Shares extended parental benefits with her partner and takes maximum allowed (61 weeks) twice, for first newborn at age 34 to age 35 and for the second newborn at age 38 to age 39. During extended parental leave, gets a benefit rate of 33%, up to maximum of $337/week as of 2019[21]
    • Maximizes and uses RRSP contribution room each year, created by taking salary in the previous year, to save for retirement, except for in any year immediately following maternity and parental leave[22]
    • Winds down work to part-time from age 66 to 69
    • Full retirement at age 70[23]
    • In retirement, draws down enough from her account to replace 60% of her pre-retirement earnings (averaged over last 5 years before age 66 when part-time work starts)[24]
    • Gross investment returns at 5% per year[25]
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Taking maternity and parental leave for ages 35-49
    Low fees Average fees Difference
    Fee structure 0.6% of assets[26] (+HST) plus $10 per month (+HST) (similar to the cost of a large pension plan)[27] 2.1% of assets (the cost of an average Canadian mutual fund)[28] About 1.5% per year
    Projected nest egg size at age 70 $2,728,303 $2,013,526 $714,777
    Projected retirement assets left at age 85 $1,078,181 Money runs out at age 83 $1,078,181 (plus approximately 2 additional years of retirement income)
    Projected retirement assets left at age 90 $1,918 Money runs out at age 83 $1,918 (plus approximately 7 additional years of retirement income)

     

    [18] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives some enhanced CPP benefits; 2) Physician receives no Old Age Security (OAS); 3) Contributions are made regularly throughout the year; 4) Female physician is incorporated and registers for access to EI special benefits for self-employed people and waited for 12 months from the date of her confirmed registration, and meets all eligibility criteria as required by the Government of Canada. See more at https://www.canada.ca/en/services/benefits/ei/ei-maternity-parental/eligibility.html and at http://www.health.gov.on.ca/en/pro/programs/parentalleave/. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [19] The Canadian Resident Matching Service reports that in post-graduate year 3, the salary is $71,224.42. See more at https://www.carms.ca/match/r-1-main-residency-match/salary/#1511459027032-06ec5e41-5301
    [20] The Government of Canada allows maximum maternity leave of 15 weeks at a benefit rate of 55%, up to a maximum of $562/week as of 2019. See more at https://www.canada.ca/en/services/benefits/ei/ei-maternity-parental.html
    [21] Government of Canada as of 2019: EI standard parental benefits can be paid for a maximum of 35 weeks at a benefit rate of 55%, up to a maximum of $562/week as of 2019. EI extended parental benefits can be paid for a maximum of 61 weeks at a benefit rate of 33%, up to a maximum of $337/week as of 2019. See more at https://www.canada.ca/en/services/benefits/ei/ei-maternity-parental.html
    [22] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [23] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [24] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [25] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [26] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [27] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
    [28] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
Getting Ready
50-64
  • Situation

    As a physician in this life phase, you are likely at the pinnacle of your career, both in terms of income generation and professional reputation.

     

    Then, as retirement approaches — and unlike many other Canadians — physicians typically have the option to gradually wind down income-earning activities, rather than face a sudden shift from working full-time to being in full retirement. Evidence shows that, compared to the average Canadian, physicians retire about seven years later.[28]

     

    In this life phase, financial preparedness for retirement may become a growing priority for you, as the number of years available to finance future retirement decreases.

     

    A “slow taper” from full-time to part-time practice can mean that you have more options for retirement income planning, and that you can benefit from more customized solutions.

     

    As you’re transitioning through the peak years of practice to your eventual retirement, your retirement planning priorities may include:

     

    • A focus on retirement income. You will likely want to create detailed plans for converting savings to income in retirement, for protecting against the risk of outliving your savings and fluctuating investment value as retirement draws closer, for succession planning for your medical practice, and for integrating various retirement income sources (e.g. government benefits such as the Canada Pension Plan and Old Age Security)
    • Minimizing investment costs to ensure that more of your saved earnings contribute to your retirement income
    • Adjusting your investments so that you take less risk as you approach retirement, while leaving some room for growth
    • Planning the timing of your retirement, including how much part-time work you want (or need) to do
    [28] Sources: OMA Economics, Research, and Analytics, Statistics Canada, CANSIM Table 282-0051
  • Why the Advantages Retirement Plan™ works for you

    The Advantages Retirement Plan™ can help you understand your retirement income options (e.g. balancing the growth and security of your retirement income) as you approach and transition into retirement by providing you:

     

    • Expertise and governance: The Advantages Retirement Plan™ offers you investment options provided by some of the world’s leading asset management and annuity firms. The Investment Committee has selected BlackRock and Brookfield Annuity to offer products that will serve your retirement planning needs. The role of these providers is strictly to manage plan members’ investment assets and underwrite the annuities to help members achieve their retirement goals.
    • Curated investment options tailor-made for retirement: The Advantages Retirement Plan™ offers several curated investment options to help address physicians’ multiple retirement objectives, including investment growth and income certainty
    • Low fees: The Advantages Retirement Plan™’s fees are comparable to the costs of a large pension plan, and are two to three times lower than what typical Canadian investors pay. [29] Lower fees ensure that more of your savings goes to your retirement income and not to management.
    • Options for lifetime income certainty: The Advantages Retirement Plan™ offers you options to help meet your need and desire for income certainty in retirement through the use of deferred life annuities. This guaranteed lifetime income program will be coming soon after the plan has launched.
    [29] Morningstar, “Global Fund Investor Experience Study” (2019)
  • The plan in action: Impact of fees

    Even if you join the Advantages Retirement Plan™ later in your career around age 50, you can see a considerable benefit to paying lower fees with the Advantages Retirement Plan™ than you would with the average Canadian mutual fund.[30]

     

    The difference between paying average fees and low fees could cost you more than $1 million in retirement income. In the example below, the physician paying low fees ends up with more than $500,000 in additional retirement income than the physician paying average fees by age 70, and more than $1 million by age 85.

     

    Illustrative example[31]

    • Physician with earnings of $200K before tax and after overhead
    • Saves 15% of earnings from age 50 to age 65
    • Has already saved $650K prior to age 50, and transfers the $650K into the Advantages Retirement Plan™ in the “low fees” scenario
    • Maximizes and uses RRSP contribution room each year, created by taking salary in the previous year, to save for retirement[32]
    • Winds down work to part-time from age 66 to 69
    • Full retirement at age 70[33]
    • In retirement, draws down enough from their account to replace 60% of their pre-retirement earnings (averaged over last 5 years before age 66 when part-time work starts)[34]
    • Gross investment returns at 5% per year[35]
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Impact of fees for ages 50-64
    Low fees Average fees Difference
    Fee structure 0.6% of assets[36] (+HST) and $10 per month (+HST)
    (similar to the cost of a large pension plan)[37]
    2.1% of assets (the cost of an average Canadian mutual fund)[38] About 1.5% per year
    Projected nest egg size at age 70 $2,353,726 $1,841,757 $511,968
    Projected retirement assets left at age 85 $1,141,470 Money runs out at age 85 $1,141,470
    Projected retirement assets left at age 90 $331,828 Money runs out at age 85 $331,828 (plus approximately 5 additional years of retirement income)

     

    [30] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
    [31] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives some enhanced CPP benefits; 2) Physician receives no Old Age Security (OAS); 3) Contributions are made regularly throughout the year; 4) Earnings grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [32] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [33] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [34] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [35] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [36] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [37] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
    [38] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
  • The plan in action: Avoiding investment mistakes

    The Advantages Retirement Plan™ has incorporated lessons learned from investment experts to avoid common investment mistakes and can help you achieve more retirement income than you might achieve by investing your nest egg on your own.

     

    Common investment mistakes can consist of inappropriate asset allocation, attempting to time the market, and making suboptimal fund or stock selection decisions. One way to measure the impact of such investment mistakes is to compare the performance of investment funds to that of the individual investors whose money is invested in those funds, taking into account factors such as the timing of when investors bought and sold those funds.

     

    A 2017 study by Morningstar examined just this over a five-year period from 2011 to 2016.[38] The study found that the average mutual fund investor underperformed the funds they were invested in by 1.09% per year. One reason for this was “performance chasing”: the tendency of investors to purchase funds that have performed well in recent years, even though recent outperformance is often an indicator of future underperformance.

     

    The example below illustrates the impact of avoiding common mistakes. Note that, in this scenario, the mistake-avoiding physician is not “beating the market.” The returns are generally tracking the market, but this individual is avoiding the kind of mistakes that cause many investors to underperform the market. Not committing these mistakes can create more than $900,000 in additional retirement assets by age 85.

     

    Illustrative example[39]

    • Physician with earnings of $200K before tax and after overhead
    • Saves 15% of earnings from age 50 to age 65
    • Has already saved $650K prior to age 50, and transfers the $650K into the Advantages Retirement Plan™
    • Maximizes and uses RRSP contribution room each year, created by taking salary in the previous year, to save for retirement[40]
    • Winds down work to part time from age 66 to 69
    • Full retirement at age 70[41]
    • In retirement, draws down enough from their account to replace 60% of their pre-retirement earnings (averaged over last 5 years before age 66 when part-time work starts)[42]
    • Gross investment returns at 5% per year[43]
    • 2% annual inflation
    • Assumes common investment mistakes reduce returns by 1% per year[44]
    • Fees of 0.6% of assets[45] (+HST) plus $10 per month (+HST) (similar to the cost of a large pension plan)[46]

     

    Advantages Retirement Plan™ in action: Avoiding investment mistakes for ages 50-64
    Starts saving at age 50 Avoids common investment mistakes Makes common investment mistakes Difference
    Projected nest egg size at age 70 $2,353,726 $1,987,793 $365,933
    Projected nest egg size at age 85 $1,141,470 $189,424 $952,046
    Projected retirement assets left at age 90 $331,828 Money runs out around age 87 $331,828 (plus approximately 3 additional years of retirement income)

     

    [38] Morningstar, “Mind the Gap: Global Investor Returns Show the Costs of Bad Timing Around the World” (2017).
    [39] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives some enhanced CPP benefits; 2) Physician receives no Old Age Security (OAS); 3) Contributions are made regularly throughout the year; 4) Earnings grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [40] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [41] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [42] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [43] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [44] Morningstar, “Mind the Gap: Global Investor Returns Show the Costs of Bad Timing Around the World” (2017).
    [45] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [46] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
  • The plan in action: Purchasing guaranteed lifetime income

    The Advantages Retirement Plan™ offers you the option of purchasing a deferred life annuity from your RRSP to protect you against the risk of outliving your money and against the risk of volatility in your investment values and returns. This guaranteed lifetime income program will be coming soon after the plan has launched.

     

    As you approach retirement, you will likely want to start thinking about ways to turn your savings into income that will last throughout all your retirement years. Two new risks that come into play in your retirement years include longevity risk and sequence of returns risk:

     

    • Longevity risk refers to the possibility of living a very long time in retirement, longer than you expect and have planned for financially
    • Sequence of returns risk is the possibility that even if your invested funds achieve the investment growth you’re looking for over the long term, a market downturn in the years leading up to or early in retirement (when you start to withdraw funds for your monthly retirement income from your nest egg portfolio) will negatively affect how long your funds will last. That is, the order or sequence of returns of your investment returns permanently impacts how much income your funds can generate in retirement

     

    One way you can protect your retirement income against these two new risks is through a life annuity – an insurance product that will provide monthly income for as long as you are alive, regardless of what age you live to be. Annuities can either be immediate or deferred. Payments for immediate annuities start right away whereas payments for deferred annuities start at a later date.

     

    Advantages Retirement Plan™ offers you deferred annuities and allows its members to purchase life annuities in increments over time. You can choose how much of your retirement income from your RRSP savings you want to guarantee, if any, starting as early as age 50. If you opt to purchase guaranteed lifetime income, Advantages Retirement Plan™ will shift a portion of your RRSP contributions into the guaranteed lifetime income offering based on your instructions, which will guarantee you some level of steady income payments for your retirement years.

     

    The Advantages Retirement Plan™ also takes into account your other sources of retirement income such as government benefits (e.g. Canada Pension Plan and Old Age Security) so that you can see a more holistic picture of how much you may wish to purchase in deferred annuities available to you through the Advantages Retirement Plan™. In Canada, most retirees will receive some form of guaranteed income in retirement through the Canada Pension Plan and Old Age Security; both benefits are paid monthly, indexed to inflation, and will continue for your lifetime (thus both protect against longevity and sequence of returns risks).

     

    But you will likely not have enough monthly income during your retirement years if you choose to rely only on CPP and OAS, and may wish to purchase additional guaranteed income for your retirement years. If you were receiving the maximum payment from both CPP and OAS today, in total you would have about $21,470 per year (~$14,110 from CPP and ~$7,360 from OAS, using 2020 benefit amounts).[46],[47] Note that the OAS benefit can be “clawed back” if your income is above a minimum threshold and eliminated completely once your income is above about $128,100 per year as of 2020.[48]

    [46] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
    [47] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
    [48] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
Approaching and in Retirement
65-90
  • Situation

    For the retired physician, the focus is likely to shift from accumulating assets to creating sustainable income.

     

    The need for integrated and holistic retirement at this life phase is critical, as multiple different income sources – including government benefits such as the Canada Pension Plan and Old Age Security — can kick in incrementally, providing opportunities to achieve retirement goals through careful income and tax planning over time.

     

    When you’re in retirement, your planning priorities may include:

     

    • Maintaining certainty and stability of retirement income to ensure that based on your retirement income targets, you’ll have enough monthly income for as long as you live
    • Adjusting your investments so that you take less risk as you enter retirement, while leaving some room for growth, as the retirement phase can extend over multiple decades
    • A focus on tax-efficient, integrated drawdown strategies that extend the value of your saved nest egg through holistic planning that incorporates taxes and government benefits
    • Minimizing investment costs to ensure that more of your saved earnings contribute to your retirement income
  • Why the Advantages Retirement Plan™ works for you

    The Advantages Retirement Plan™ can help you transition into retirement and once you are retired to better understand your retirement income options.

     

    • The Advantages Retirement Plan™ is here for you post-retirement: Unlike many workplace retirement plans in Canada, the Advantages Retirement Plan™ stays with you into retirement. You can transfer existing Registered Retirement Income Fund (RRIF) assets into the Advantages Retirement Plan™ (your RRSPs must be converted to a RRIF no later than the end of the year you turn 71, at which time minimum payments must be made).
    • A mix of options to meet multiple objectives: The Advantages Retirement Plan™ incorporates a range of options to address physicians’ multiple retirement objectives, including investment growth and income certainty.
    • Options for lifetime income certainty: The Advantages Retirement Plan™ gives you the option of purchasing deferred life annuities if you need or desire to secure income certainty in retirement. This guaranteed lifetime income program will be coming soon after the plan has launched.
    • Low fees: The Advantages Retirement Plan™’s fees are comparable to the costs of a large pension plan, and are two to three times lower than what typical Canadian investors pay. [49] Lower fees ensure that more of your savings goes to your retirement income and not to management.
    [49] Morningstar, “Global Fund Investor Experience Study” (2019)
  • The plan in action: Purchasing guaranteed lifetime income

    The Advantages Retirement Plan™ offers you the option of purchasing a deferred life annuity from your RRSP to protect you against the risk of outliving your money and against the risk of volatility in your investment values and returns. This guaranteed lifetime income program will be coming soon after the plan has launched.

     

    As you enter retirement, you will likely want to turn your savings into income that will last throughout all your retirement years. Two new risks that come into play in your retirement years include longevity risk and sequence of returns risk:

     

    • Longevity risk refers to the possibility of living a very long time in retirement, longer than you expect and have planned for financially
    • “Sequence of returns risk,” is the possibility that even if your invested funds achieve the investment growth you’re looking for over the long term, a market downturn in the years leading up to or early in retirement (when you start to withdraw funds for your monthly retirement income from your nest egg portfolio) will negatively affect how long your funds will last. That is, the order or sequence of returns of your investment returns permanently impacts how much income your funds can generate in retirement.

     

    One way you can protect your retirement income against these two new risks is through a life annuity – an insurance product that will provide monthly income for as long as you are alive, regardless of what age you live to be. Annuities can either be immediate or deferred. Payments for immediate annuities start right away whereas payments for deferred annuities start at a later date.

     

    The Advantages Retirement Plan™ offers you deferred annuities and allows its members to purchase life annuities in increments over time. You can choose how much of your retirement income from your RRSP savings you want to guarantee, if any, starting as early as age 50. If you opt to purchase guaranteed lifetime income, the Advantages Retirement Plan™ will shift a portion of your RRSP contributions into the guaranteed lifetime income offering based on your instructions, which will guarantee you some level of steady income payments for your retirement years.

     

    The Advantages Retirement Plan™ also takes into account your other sources of retirement income such as government benefits (e.g. Canada Pension Plan and Old Age Security) so that you can see a more holistic picture of how much you may wish to purchase in deferred annuities available to you through the Advantages Retirement Plan™. In Canada, most retirees will receive some form of guaranteed income in retirement through the Canada Pension Plan and Old Age Security; both benefits are paid monthly, indexed to inflation, and will continue for your lifetime (thus both protect against longevity and sequence of returns risks).

     

    But you will likely not have enough monthly income during your retirement years if you choose to rely only on CPP and OAS, and may wish to purchase additional guaranteed income for your retirement years. If you were receiving the maximum payment from both CPP and OAS today, in total you would have about $21,470 per year (~$14,110 from CPP and ~$7,360 from OAS, using 2020 benefit amounts).[57],[58] Note that the OAS benefit can be “clawed back” if your income is above a minimum threshold and eliminated completely once your income is above about $128,100 per year as of 2020.[59]

    [57] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
    [58] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
    [59] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
  • The plan in action: Impact of fees

    Even if you join the Advantages Retirement Plan™ close to or at retirement age, you can see a considerable benefit to paying lower fees with Advantages Retirement Plan™ than you would with the average Canadian mutual fund.[60]

     

    The difference between paying Advantages Retirement Plan™ fees and the average Canadian mutual fund fees[61] during your retirement years could cost you more than $500,000 in retirement income. In the example below, the physician who is age 70 today and pays lower fees with Advantages Retirement Plan™ ends up with more than $500,000 in additional retirement income than the physician paying average fees by age 90.

     

    Illustrative example[62]

    • Physician is age 70 and has saved $2M before signing up with the Advantages Retirement Plan™
    • In retirement starting at age 70[63], draws down enough from their account to replace 60% of their pre-retirement earnings, where averaged over last 5 years before retirement was $200,000 (before tax and after overhead)[64]
    • Gross investment returns at 4.4% per year[65]
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Impact of fees for ages 65-90
    Low fees Average fees Difference
    Fee structure 0.6% of assets (+HST)[66] plus $10 per month (+HST) (similar to the cost of a large pension plan)[67] 2.1% of assets (the cost of an average Canadian mutual fund)[68] About 1.5% per year
    Projected retirement assets left at age 85 $1,138,519 $720,053 $418,466
    Projected retirement assets left at age 90 $583,901 $51,143 $532,757

     

    [60] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.14%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2017).
    [61] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.14%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2017).
    [62] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives CPP benefits; 2) Physician receives no Old Age Security (OAS). These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [63] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [64] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [65] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.41% for a diversified, conservative portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [66]0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [67] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
    [68] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.14%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2017).
  • The plan in action: Deferring Canada Pension Plan benefits

    The Advantages Retirement Plan™ has educational articles to help you understand factors to consider before making decisions that may impact the quality of your retirement. You can also speak to OMA Insurance advisors to uncover further educational information.

     

    An important aspect of achieving retirement value for money involves developing a sound approach to government benefits. One example of this is the decision of when to take Old Age Security (Old Age Security) and Canada Pension Plan (Canada Pension Plan) benefits. Canadians can access Old Age Security as early as age 65 and as late as age 70. For each additional month you wait past 65 to take Old Age Security, your monthly benefits increase by 0.6% (annual benefits increase by 7.2%), up to a maximum of 36% at age 70.[50] Canadians can access Canada Pension Plan as early as age 60 and as late as age 70. If you take Canada Pension Plan benefits before age 65, your Canada Pension Plan benefit is reduced by 0.6% for each month you receive it before age 65 (7.2% per year). If you take Canada Pension Plan benefits after age 65, your monthly payment amount is increased by 0.7% for each month after age 65 up to age 70 (8.4% per year).[51] For many Canadians, especially those who, like physicians, have longer life expectancies, there can be significant benefits to deferring Old Age Security and Canada Pension Plan until age 70.[52] Yet fewer than 1% of Canadians employ this strategy.[53]

     

    In the case below, for a 64-year-old physician who lives until age 91, deferring Old Age Security and Canada Pension Plan until age 70 could be worth close to $60,000 (in future dollars, adjusted for annual inflation of ~2%).

     

    Illustrative example[54]

    • Physician is age 64 and has saved $2M before signing up with the Advantages Retirement Plan™
    • Receives maximum Canada Pension Plan as of 2019. This means that they have enough in salary-based earnings to max out their Canada Pension Plan contributions in at least 40 years between ages 18 and 65[55]
    • Receives no Old Age Security. This means they have lived in Canada for at least 40 years by the time they reach retirement, but their post-retirement income is too high to qualify for Old Age Security and is affected by the Old Age Security “clawback”[56]
    • Lives until age 91
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Deferring Canadian Pension Plan benefits for ages 65-90
    Takes Canada Pension Plan at 65 Takes Canada Pension Plan at 70 Difference
    Projected annual Canada Pension Plan benefit at age 70 (2025) $15,603 $20,469 $4,866
    Projected annual Old Age Security benefit at age 70 (2025) Post-retirement income is too high to qualify Post-retirement income is too high to qualify n/a
    Lifetime Canada Pension Plan received $499,488 $558,779 $59,291

     

    [50] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/eligibility.html
    [51] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
    [52] A number of well-known financial commentators have recommended a Canada Pension Plan and Old Age Security deferral strategy. See, for example, Fred Vettese, “Why You Should Wait to Age 70 to Start to Collect Canada Pension Plan Benefits,” Financial Post (Aug 16, 2016); Jonathan Chevreau, “The Secret to Paying Less Tax in Retirement,” Globe and Mail (Aug 31, 2017).
    [53] Fred Vettese, “Why You Should Wait to Age 70 to Start to Collect Canada Pension Plan Benefits,” Financial Post (Aug 16, 2016).
    [54] Canada Pension Plan and Old Age Security benefits grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [55] See https://www.canada.ca/en/services/benefits/publicpensions/cpp.html
    [56] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/recovery-tax.html
  • Situation

    The journey through medical school and residency is an important step towards your medical career, with many physicians transitioning into practice in their 30s. Physicians spend more time in school — and accumulate more student debt — than the vast majority of Canadians do. The median debt load upon graduation is ~$100,000[1] and often grows during residency.

     

    While these extra years of school and residency can translate into a successful and noble career that comes with higher expected earnings over time, they can also mean a slower than average start on long-term financial planning goals, such as saving for retirement.

     

    Because the transition to practice may only happen when you are in your 30s, early-practice earnings may need to fulfill a lot of roles: debt repayment, life goals such as buying a house and starting a family, and saving for long-term needs, including retirement.

     

    This means that residents, fellows, and early-stage physicians often need to find a financial balance among many competing motivations and demands for relatively scarce dollars.

     

    But that doesn’t mean that retirement savings must remain on the back burner during residency and the first years of practice.

     

    In fact, starting to save and plan for retirement when you are young allows you to take advantage of an asset that diminishes as you age: the power of time, which allows your investment returns to grow via compounding. Even if you can’t start saving in your late 20s, ensuring that you start as soon as you’re able can pay lifelong dividends by increasing the amount of your savings over time. That’s why OMA Insurance has designed the Advantages Retirement Plan™ to meet the needs of the physician community at every life phase, including for the earlier years of your career.

     

    When you’re finishing school, transitioning through residency, and first establishing your practice, your retirement planning priorities may include:

     

    • Finding a balance between repaying debt, spending, and saving for long-term goals — including retirement
    • Beginning to accumulate savings even at a modest level, while making a plan to increase these savings over time
    [1] The Association of Faculties of Medicine of Canada (2019). Graduation Questionnaire National Report 2019, p. 43. Retrieved from https://afmc.ca/sites/default/files/nationalreports/2019_AFMC_GQ_National_EN.pdf
  • Why the Advantages Retirement Plan™ works for you

    The Advantages Retirement Plan™ is designed to allow those approaching residency, residents, fellows, and new-in-practice physicians to start planning for retirement sooner rather than later.

     

    The Advantages Retirement Plan™ allows you to set income and retirement savings targets to ensure that planning for retirement doesn’t get left behind even while your primary focus is on establishing your career and practice.

     

    Features of the Advantages Retirement Plan™ designed specifically to meet the needs of the physician community in the “Getting Started” phase include:

     

    • Low contribution requirement: You can get started with as little as $50/month. Without being locked into high required contributions, you can kickstart your retirement planning while also balancing your other financial needs and priorities. You can also adjust your participation in step with any income fluctuations.
    • Low fees: The Advantages Retirement Plan™’s fees are comparable to the costs of a large pension plan, and are two to three times lower than what typical Canadian investors pay.[2] Lower fees ensure that more of your savings goes to your retirement income and not to management.
    • Simplicity and flexibility: Participating in the plan is easy. The Advantages Retirement Plan™ incorporates a self-serve, online approach to plan participation, while allowing you to maintain your freedom to adjust how your dollars are allocated within your Advantages Retirement Plan™ savings accounts.
    • A savings plan that grows with you: A unique feature of the Advantages Retirement Plan™ is the built-in “automatic escalation” feature, which allows your savings rate to incrementally ramp up over time as your income increases, while still allowing you to retain control.
    [2] Morningstar, “Global Fund Investor Experience Study” (2019)
  • The plan in action: Saving earlier

    With the Advantages Retirement Plan™, you can start off saving as little as $50 per month. As you pay off student debt and your earnings increase, you can gradually increase your savings and meet your retirement goals.

     

    Behavioural research shows that most of us tend to put off saving for the future.[3] While it might be hard to see the effects of such a delay at the time, deferring retirement savings can cost you a great deal. In the example below, starting to save five years earlier – age 29 rather than age 34 – means a difference of over $1 million to draw retirement income from by age 70. If you subtract the additional ~$360,000 the earlier saver contributes to their retirement plan, this is still a difference of ~$737,000 for no additional cost. Younger physicians often have student debt. This likely means that if you are a younger physician, you have less capacity to save in your early years as a physician, so the example below starts you off at $100 per month for the first three years of saving.

     

    Illustrative example[4]

    • Savings of $100 per month starting at age 29 or age 34 for three years
    • Savings gradually increase over five years to max out TFSA and RRSP contribution room[5] (after 3 years of saving at $100 per month) to age 65
    • Winds down work to part time from age 66 to 69 and halves annual contribution amount during these years
    • Retirement at age 70[6]
    • Gross investment returns at 5% per year[7]
    • 2% annual inflation
    • Fees of 0.6% of assets[8] (+HST) plus $10 per month (+HST) (similar to the cost of a large pension plan)[9]

     

    Advantages Retirement Plan™ in action: Saving earlier for ages 25-34
    Starts earlier Starts later Difference
    Starts saving at Age 29 Age 34 5 years
    Projected nest egg size at age 70 $3,887,259 $2,786,892 $1,100,367

     

    [3] See, for example, Brigitte Madrian, “Research Summary: The Determinants of Individual Saving and Investment Outcomes,” National Bureau of Economic Research Reporter (No. 3, 2010).
    [4] Other assumptions include the following: 1) Earnings grow by inflation; 2) Corresponding annual savings grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [5] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [6] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [7] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [8] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST).
    [9] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
  • Situation

    Once your practice is established, your earnings can climb rapidly as you convert the human capital value you’ve built up through school and residency into financial capital. At the same time, physicians in this phase of life often experience rapid overall change, both professionally and personally.

     

    Early to mid-career physicians often find themselves making tough financial decisions. Early-career physicians may need to make decisions with significant financial implications, such as whether and when to incorporate your practice. Mid-career physicians may need to determine if their current savings rates and amounts are sufficient to achieve their desired retirement date and income level — and may need to reorient and adjust if not.

     

    By helping create a holistic picture of expected income in retirement and allocating a portion of earnings to retirement savings, the Advantages Retirement Plan™ can help meet the retirement needs of the physician community. As your earnings increase over time, you can adjust your participation in the Advantages Retirement Plan™ to help ensure your desired retirement future becomes a reality.

     

    As you’re transitioning through the early years of practice to your peak earning years, your retirement planning priorities may include:

     

    • Increasing your savings rate so it will be adequate to meet your retirement goals. Many physicians will want to move towards maximizing their TFSA and RRSP contributions, and those of their spouse/common-law partner, during this period.
    • Starting to think about retirement income planning as your specific retirement goals and timelines come into clearer focus — including an increasing interest in how your savings will be converted to income in retirement
    • Minimizing investment costs to ensure that more of your saved earnings contribute to your retirement income
  • Why the Advantages Retirement Plan™ works for you

    Features of the Advantages Retirement Plan™ designed specifically to meet the needs of the physician community in the “Getting Serious” phase include:

     

    • Expertise and governance: The Advantages Retirement Plan™ offers you investment options provided by some of the world’s leading asset management and annuity firms. The Investment Committee has selected BlackRock and Brookfield Annuity to offer products that will serve your retirement planning needs. The role of these providers is strictly to manage plan members’ investment assets and underwrite the annuities to help members achieve their retirement goals.
    • Simplicity and flexibility: OMA Insurance has made participating in the plan easy for you — incorporating a “self-serve,” online approach to plan participation — while allowing you to adjust how your future contributions are invested through the Advantages Retirement Plan™ to build and generate retirement income
    • Retirement income focus: You can use the Advantages Retirement Plan™ online platform to identify your target income in retirement, and incorporate retirement income sources including government benefits (such as Canada Pension Plan and Old Age Security), so that you can develop a more holistic picture of retirement
    • Low fees: The Advantages Retirement Plan™’s fees are comparable to the costs of a large pension plan, and are two to three times lower than what typical Canadian investors pay.[9] Lower fees ensure that more of your savings goes to your retirement income and not to management.
    • A mix of options for retirement income certainty: The Advantages Retirement Plan™ allows you to begin allocating funds to options for income certainty in retirement, through the purchase of deferred income annuities within your RRSP. This guaranteed lifetime income program will be coming soon after the plan has launched.
    [9] Morningstar, “Global Fund Investor Experience Study” (2019)
  • The plan in action: Impact of fees

    With the Advantages Retirement Plan™, you pay lower fees than you would with the average Canadian mutual fund[10] and can end up with more than $1 million in additional retirement income as a result of lower fees.  

     

    The difference between paying average fees and low fees could cost you over $1 million in retirement income. In the example below, the physician paying low fees ends up with over ~$650,000 more than the physician paying average fees by age 70, and more than $1 million by age 85.

     

    Illustrative example[11]

    • Physician with earnings of $200K before tax and after overhead
    • Saves 15% of earnings from age 40 to 65
    • Has already saved $200K prior to age 40, and transfers the $200K into the Advantages Retirement Plan™
    • Maximizes and uses RRSP contribution room each year, created by taking salary in the previous year, to save for retirement[12]
    • Winds down work to part time from age 66 to 69
    • Full retirement at age 70[13]
    • In retirement, draws down enough from their account to replace 60% of their pre-retirement earnings (averaged over last 5 years before age 66 when part-time work starts)[14]
    • Gross investment returns at 5% per year[15]
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Impact of fees for ages 35-49
    Low fees Average fees Difference
    Fee structure 0.6% of assets[16] (+HST) and $10 per month (+HST)
    (similar to the cost of a large pension plan)[17]
    2.1% of assets (the cost of an average Canadian mutual fund)[18] About 1.5% per year
    Projected nest egg size at age 70 $2,676,504 $1,982,117 $694,387
    Projected retirement assets left at age 85 $1,125,305 Money runs out at age 83 $1,125,305 (plus approximately 2 additional years of retirement income)
    Projected retirement assets left at age 90 $107,490 Money runs out at age 83 $107,490 (plus approximately 7 additional years of retirement income)

     

    [10] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
    [11] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives some enhanced CPP benefits; 2) Physician receives no Old Age Security (OAS); 3) Contributions are made regularly throughout the year; 4) Earnings grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [12] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [13] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [14] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [15] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [16] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [17] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
    [18] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
  • The plan in action: Taking maternity and parental leave

    With the Advantages Retirement Plan™, you can achieve your retirement goals even with taking time off from being a physician for important life events such as having children. Even if you take the maximum paid maternity leave and extended paid parental leave, and save less than the maximum TFSA and RRSP contribution rooms allowed during your leave, you can still achieve your target retirement income.

     

    Many physicians may take maternity and parental leave if they have children. In the example below, a female physician takes 15 weeks of maternity leave and 61 weeks of extended parental leave per child, has two children, and still achieves retirement readiness with the Advantages Retirement Plan™. The difference between paying average fees and low fees could cost you over $1 million in retirement income. In the example below, the physician paying low fees ends up with ~$700,000 more than the other physician paying average fees by age 70, and over $1 million by age 85.

    Illustrative example[18]

    • Female physician in residency with earnings of ~$71,224[19] at age 30 (before tax and after overhead starting); earnings increase over time, up to $200,000 at age 36 (before tax and after overhead)
    • Saves 15% of earnings from age 30 to age 65
    • Takes maximum maternity leave (15 weeks) twice, for first pregnancy at age 33 and for second pregnancy at age 37. During maternity leave, gets a benefit rate of 55%, up to a maximum of $562/week as of 2019[20]
    • Shares extended parental benefits with her partner and takes maximum allowed (61 weeks) twice, for first newborn at age 34 to age 35 and for the second newborn at age 38 to age 39. During extended parental leave, gets a benefit rate of 33%, up to maximum of $337/week as of 2019[21]
    • Maximizes and uses RRSP contribution room each year, created by taking salary in the previous year, to save for retirement, except for in any year immediately following maternity and parental leave[22]
    • Winds down work to part-time from age 66 to 69
    • Full retirement at age 70[23]
    • In retirement, draws down enough from her account to replace 60% of her pre-retirement earnings (averaged over last 5 years before age 66 when part-time work starts)[24]
    • Gross investment returns at 5% per year[25]
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Taking maternity and parental leave for ages 35-49
    Low fees Average fees Difference
    Fee structure 0.6% of assets[26] (+HST) plus $10 per month (+HST) (similar to the cost of a large pension plan)[27] 2.1% of assets (the cost of an average Canadian mutual fund)[28] About 1.5% per year
    Projected nest egg size at age 70 $2,728,303 $2,013,526 $714,777
    Projected retirement assets left at age 85 $1,078,181 Money runs out at age 83 $1,078,181 (plus approximately 2 additional years of retirement income)
    Projected retirement assets left at age 90 $1,918 Money runs out at age 83 $1,918 (plus approximately 7 additional years of retirement income)

     

    [18] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives some enhanced CPP benefits; 2) Physician receives no Old Age Security (OAS); 3) Contributions are made regularly throughout the year; 4) Female physician is incorporated and registers for access to EI special benefits for self-employed people and waited for 12 months from the date of her confirmed registration, and meets all eligibility criteria as required by the Government of Canada. See more at https://www.canada.ca/en/services/benefits/ei/ei-maternity-parental/eligibility.html and at http://www.health.gov.on.ca/en/pro/programs/parentalleave/. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [19] The Canadian Resident Matching Service reports that in post-graduate year 3, the salary is $71,224.42. See more at https://www.carms.ca/match/r-1-main-residency-match/salary/#1511459027032-06ec5e41-5301
    [20] The Government of Canada allows maximum maternity leave of 15 weeks at a benefit rate of 55%, up to a maximum of $562/week as of 2019. See more at https://www.canada.ca/en/services/benefits/ei/ei-maternity-parental.html
    [21] Government of Canada as of 2019: EI standard parental benefits can be paid for a maximum of 35 weeks at a benefit rate of 55%, up to a maximum of $562/week as of 2019. EI extended parental benefits can be paid for a maximum of 61 weeks at a benefit rate of 33%, up to a maximum of $337/week as of 2019. See more at https://www.canada.ca/en/services/benefits/ei/ei-maternity-parental.html
    [22] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [23] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [24] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [25] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [26] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [27] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
    [28] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
  • Situation

    As a physician in this life phase, you are likely at the pinnacle of your career, both in terms of income generation and professional reputation.

     

    Then, as retirement approaches — and unlike many other Canadians — physicians typically have the option to gradually wind down income-earning activities, rather than face a sudden shift from working full-time to being in full retirement. Evidence shows that, compared to the average Canadian, physicians retire about seven years later.[28]

     

    In this life phase, financial preparedness for retirement may become a growing priority for you, as the number of years available to finance future retirement decreases.

     

    A “slow taper” from full-time to part-time practice can mean that you have more options for retirement income planning, and that you can benefit from more customized solutions.

     

    As you’re transitioning through the peak years of practice to your eventual retirement, your retirement planning priorities may include:

     

    • A focus on retirement income. You will likely want to create detailed plans for converting savings to income in retirement, for protecting against the risk of outliving your savings and fluctuating investment value as retirement draws closer, for succession planning for your medical practice, and for integrating various retirement income sources (e.g. government benefits such as the Canada Pension Plan and Old Age Security)
    • Minimizing investment costs to ensure that more of your saved earnings contribute to your retirement income
    • Adjusting your investments so that you take less risk as you approach retirement, while leaving some room for growth
    • Planning the timing of your retirement, including how much part-time work you want (or need) to do
    [28] Sources: OMA Economics, Research, and Analytics, Statistics Canada, CANSIM Table 282-0051
  • Why the Advantages Retirement Plan™ works for you

    The Advantages Retirement Plan™ can help you understand your retirement income options (e.g. balancing the growth and security of your retirement income) as you approach and transition into retirement by providing you:

     

    • Expertise and governance: The Advantages Retirement Plan™ offers you investment options provided by some of the world’s leading asset management and annuity firms. The Investment Committee has selected BlackRock and Brookfield Annuity to offer products that will serve your retirement planning needs. The role of these providers is strictly to manage plan members’ investment assets and underwrite the annuities to help members achieve their retirement goals.
    • Curated investment options tailor-made for retirement: The Advantages Retirement Plan™ offers several curated investment options to help address physicians’ multiple retirement objectives, including investment growth and income certainty
    • Low fees: The Advantages Retirement Plan™’s fees are comparable to the costs of a large pension plan, and are two to three times lower than what typical Canadian investors pay. [29] Lower fees ensure that more of your savings goes to your retirement income and not to management.
    • Options for lifetime income certainty: The Advantages Retirement Plan™ offers you options to help meet your need and desire for income certainty in retirement through the use of deferred life annuities. This guaranteed lifetime income program will be coming soon after the plan has launched.
    [29] Morningstar, “Global Fund Investor Experience Study” (2019)
  • The plan in action: Impact of fees

    Even if you join the Advantages Retirement Plan™ later in your career around age 50, you can see a considerable benefit to paying lower fees with the Advantages Retirement Plan™ than you would with the average Canadian mutual fund.[30]

     

    The difference between paying average fees and low fees could cost you more than $1 million in retirement income. In the example below, the physician paying low fees ends up with more than $500,000 in additional retirement income than the physician paying average fees by age 70, and more than $1 million by age 85.

     

    Illustrative example[31]

    • Physician with earnings of $200K before tax and after overhead
    • Saves 15% of earnings from age 50 to age 65
    • Has already saved $650K prior to age 50, and transfers the $650K into the Advantages Retirement Plan™ in the “low fees” scenario
    • Maximizes and uses RRSP contribution room each year, created by taking salary in the previous year, to save for retirement[32]
    • Winds down work to part-time from age 66 to 69
    • Full retirement at age 70[33]
    • In retirement, draws down enough from their account to replace 60% of their pre-retirement earnings (averaged over last 5 years before age 66 when part-time work starts)[34]
    • Gross investment returns at 5% per year[35]
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Impact of fees for ages 50-64
    Low fees Average fees Difference
    Fee structure 0.6% of assets[36] (+HST) and $10 per month (+HST)
    (similar to the cost of a large pension plan)[37]
    2.1% of assets (the cost of an average Canadian mutual fund)[38] About 1.5% per year
    Projected nest egg size at age 70 $2,353,726 $1,841,757 $511,968
    Projected retirement assets left at age 85 $1,141,470 Money runs out at age 85 $1,141,470
    Projected retirement assets left at age 90 $331,828 Money runs out at age 85 $331,828 (plus approximately 5 additional years of retirement income)

     

    [30] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
    [31] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives some enhanced CPP benefits; 2) Physician receives no Old Age Security (OAS); 3) Contributions are made regularly throughout the year; 4) Earnings grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [32] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [33] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [34] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [35] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [36] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [37] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
    [38] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.10%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2019).
  • The plan in action: Avoiding investment mistakes

    The Advantages Retirement Plan™ has incorporated lessons learned from investment experts to avoid common investment mistakes and can help you achieve more retirement income than you might achieve by investing your nest egg on your own.

     

    Common investment mistakes can consist of inappropriate asset allocation, attempting to time the market, and making suboptimal fund or stock selection decisions. One way to measure the impact of such investment mistakes is to compare the performance of investment funds to that of the individual investors whose money is invested in those funds, taking into account factors such as the timing of when investors bought and sold those funds.

     

    A 2017 study by Morningstar examined just this over a five-year period from 2011 to 2016.[38] The study found that the average mutual fund investor underperformed the funds they were invested in by 1.09% per year. One reason for this was “performance chasing”: the tendency of investors to purchase funds that have performed well in recent years, even though recent outperformance is often an indicator of future underperformance.

     

    The example below illustrates the impact of avoiding common mistakes. Note that, in this scenario, the mistake-avoiding physician is not “beating the market.” The returns are generally tracking the market, but this individual is avoiding the kind of mistakes that cause many investors to underperform the market. Not committing these mistakes can create more than $900,000 in additional retirement assets by age 85.

     

    Illustrative example[39]

    • Physician with earnings of $200K before tax and after overhead
    • Saves 15% of earnings from age 50 to age 65
    • Has already saved $650K prior to age 50, and transfers the $650K into the Advantages Retirement Plan™
    • Maximizes and uses RRSP contribution room each year, created by taking salary in the previous year, to save for retirement[40]
    • Winds down work to part time from age 66 to 69
    • Full retirement at age 70[41]
    • In retirement, draws down enough from their account to replace 60% of their pre-retirement earnings (averaged over last 5 years before age 66 when part-time work starts)[42]
    • Gross investment returns at 5% per year[43]
    • 2% annual inflation
    • Assumes common investment mistakes reduce returns by 1% per year[44]
    • Fees of 0.6% of assets[45] (+HST) plus $10 per month (+HST) (similar to the cost of a large pension plan)[46]

     

    Advantages Retirement Plan™ in action: Avoiding investment mistakes for ages 50-64
    Starts saving at age 50 Avoids common investment mistakes Makes common investment mistakes Difference
    Projected nest egg size at age 70 $2,353,726 $1,987,793 $365,933
    Projected nest egg size at age 85 $1,141,470 $189,424 $952,046
    Projected retirement assets left at age 90 $331,828 Money runs out around age 87 $331,828 (plus approximately 3 additional years of retirement income)

     

    [38] Morningstar, “Mind the Gap: Global Investor Returns Show the Costs of Bad Timing Around the World” (2017).
    [39] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives some enhanced CPP benefits; 2) Physician receives no Old Age Security (OAS); 3) Contributions are made regularly throughout the year; 4) Earnings grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [40] To maximize and use RRSP contribution room, the physician takes earnings in the form of a salary. For 2020, the maximum RRSP contribution room is $27,230; a salary of $151,278 from 2019 is required. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP. Investment earnings while your savings are in your RRSP do not get taxed until you withdraw funds from your RRSP, in which case your withdrawal (you must withdraw money from your RRSP the year that you turn 71) will be taxed as income, except in a few special situations. Future TFSA and RRSP contribution rooms are estimated from 2020 onwards, assuming 2% annual inflation. See https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html.
    [41] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [42] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [43] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.99% for a diversified, balanced portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [44] Morningstar, “Mind the Gap: Global Investor Returns Show the Costs of Bad Timing Around the World” (2017).
    [45] 0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [46] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
  • The plan in action: Purchasing guaranteed lifetime income

    The Advantages Retirement Plan™ offers you the option of purchasing a deferred life annuity from your RRSP to protect you against the risk of outliving your money and against the risk of volatility in your investment values and returns. This guaranteed lifetime income program will be coming soon after the plan has launched.

     

    As you approach retirement, you will likely want to start thinking about ways to turn your savings into income that will last throughout all your retirement years. Two new risks that come into play in your retirement years include longevity risk and sequence of returns risk:

     

    • Longevity risk refers to the possibility of living a very long time in retirement, longer than you expect and have planned for financially
    • Sequence of returns risk is the possibility that even if your invested funds achieve the investment growth you’re looking for over the long term, a market downturn in the years leading up to or early in retirement (when you start to withdraw funds for your monthly retirement income from your nest egg portfolio) will negatively affect how long your funds will last. That is, the order or sequence of returns of your investment returns permanently impacts how much income your funds can generate in retirement

     

    One way you can protect your retirement income against these two new risks is through a life annuity – an insurance product that will provide monthly income for as long as you are alive, regardless of what age you live to be. Annuities can either be immediate or deferred. Payments for immediate annuities start right away whereas payments for deferred annuities start at a later date.

     

    Advantages Retirement Plan™ offers you deferred annuities and allows its members to purchase life annuities in increments over time. You can choose how much of your retirement income from your RRSP savings you want to guarantee, if any, starting as early as age 50. If you opt to purchase guaranteed lifetime income, Advantages Retirement Plan™ will shift a portion of your RRSP contributions into the guaranteed lifetime income offering based on your instructions, which will guarantee you some level of steady income payments for your retirement years.

     

    The Advantages Retirement Plan™ also takes into account your other sources of retirement income such as government benefits (e.g. Canada Pension Plan and Old Age Security) so that you can see a more holistic picture of how much you may wish to purchase in deferred annuities available to you through the Advantages Retirement Plan™. In Canada, most retirees will receive some form of guaranteed income in retirement through the Canada Pension Plan and Old Age Security; both benefits are paid monthly, indexed to inflation, and will continue for your lifetime (thus both protect against longevity and sequence of returns risks).

     

    But you will likely not have enough monthly income during your retirement years if you choose to rely only on CPP and OAS, and may wish to purchase additional guaranteed income for your retirement years. If you were receiving the maximum payment from both CPP and OAS today, in total you would have about $21,470 per year (~$14,110 from CPP and ~$7,360 from OAS, using 2020 benefit amounts).[46],[47] Note that the OAS benefit can be “clawed back” if your income is above a minimum threshold and eliminated completely once your income is above about $128,100 per year as of 2020.[48]

    [46] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
    [47] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
    [48] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
  • Situation

    For the retired physician, the focus is likely to shift from accumulating assets to creating sustainable income.

     

    The need for integrated and holistic retirement at this life phase is critical, as multiple different income sources – including government benefits such as the Canada Pension Plan and Old Age Security — can kick in incrementally, providing opportunities to achieve retirement goals through careful income and tax planning over time.

     

    When you’re in retirement, your planning priorities may include:

     

    • Maintaining certainty and stability of retirement income to ensure that based on your retirement income targets, you’ll have enough monthly income for as long as you live
    • Adjusting your investments so that you take less risk as you enter retirement, while leaving some room for growth, as the retirement phase can extend over multiple decades
    • A focus on tax-efficient, integrated drawdown strategies that extend the value of your saved nest egg through holistic planning that incorporates taxes and government benefits
    • Minimizing investment costs to ensure that more of your saved earnings contribute to your retirement income
  • Why the Advantages Retirement Plan™ works for you

    The Advantages Retirement Plan™ can help you transition into retirement and once you are retired to better understand your retirement income options.

     

    • The Advantages Retirement Plan™ is here for you post-retirement: Unlike many workplace retirement plans in Canada, the Advantages Retirement Plan™ stays with you into retirement. You can transfer existing Registered Retirement Income Fund (RRIF) assets into the Advantages Retirement Plan™ (your RRSPs must be converted to a RRIF no later than the end of the year you turn 71, at which time minimum payments must be made).
    • A mix of options to meet multiple objectives: The Advantages Retirement Plan™ incorporates a range of options to address physicians’ multiple retirement objectives, including investment growth and income certainty.
    • Options for lifetime income certainty: The Advantages Retirement Plan™ gives you the option of purchasing deferred life annuities if you need or desire to secure income certainty in retirement. This guaranteed lifetime income program will be coming soon after the plan has launched.
    • Low fees: The Advantages Retirement Plan™’s fees are comparable to the costs of a large pension plan, and are two to three times lower than what typical Canadian investors pay. [49] Lower fees ensure that more of your savings goes to your retirement income and not to management.
    [49] Morningstar, “Global Fund Investor Experience Study” (2019)
  • The plan in action: Purchasing guaranteed lifetime income

    The Advantages Retirement Plan™ offers you the option of purchasing a deferred life annuity from your RRSP to protect you against the risk of outliving your money and against the risk of volatility in your investment values and returns. This guaranteed lifetime income program will be coming soon after the plan has launched.

     

    As you enter retirement, you will likely want to turn your savings into income that will last throughout all your retirement years. Two new risks that come into play in your retirement years include longevity risk and sequence of returns risk:

     

    • Longevity risk refers to the possibility of living a very long time in retirement, longer than you expect and have planned for financially
    • “Sequence of returns risk,” is the possibility that even if your invested funds achieve the investment growth you’re looking for over the long term, a market downturn in the years leading up to or early in retirement (when you start to withdraw funds for your monthly retirement income from your nest egg portfolio) will negatively affect how long your funds will last. That is, the order or sequence of returns of your investment returns permanently impacts how much income your funds can generate in retirement.

     

    One way you can protect your retirement income against these two new risks is through a life annuity – an insurance product that will provide monthly income for as long as you are alive, regardless of what age you live to be. Annuities can either be immediate or deferred. Payments for immediate annuities start right away whereas payments for deferred annuities start at a later date.

     

    The Advantages Retirement Plan™ offers you deferred annuities and allows its members to purchase life annuities in increments over time. You can choose how much of your retirement income from your RRSP savings you want to guarantee, if any, starting as early as age 50. If you opt to purchase guaranteed lifetime income, the Advantages Retirement Plan™ will shift a portion of your RRSP contributions into the guaranteed lifetime income offering based on your instructions, which will guarantee you some level of steady income payments for your retirement years.

     

    The Advantages Retirement Plan™ also takes into account your other sources of retirement income such as government benefits (e.g. Canada Pension Plan and Old Age Security) so that you can see a more holistic picture of how much you may wish to purchase in deferred annuities available to you through the Advantages Retirement Plan™. In Canada, most retirees will receive some form of guaranteed income in retirement through the Canada Pension Plan and Old Age Security; both benefits are paid monthly, indexed to inflation, and will continue for your lifetime (thus both protect against longevity and sequence of returns risks).

     

    But you will likely not have enough monthly income during your retirement years if you choose to rely only on CPP and OAS, and may wish to purchase additional guaranteed income for your retirement years. If you were receiving the maximum payment from both CPP and OAS today, in total you would have about $21,470 per year (~$14,110 from CPP and ~$7,360 from OAS, using 2020 benefit amounts).[57],[58] Note that the OAS benefit can be “clawed back” if your income is above a minimum threshold and eliminated completely once your income is above about $128,100 per year as of 2020.[59]

    [57] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
    [58] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
    [59] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html
  • The plan in action: Impact of fees

    Even if you join the Advantages Retirement Plan™ close to or at retirement age, you can see a considerable benefit to paying lower fees with Advantages Retirement Plan™ than you would with the average Canadian mutual fund.[60]

     

    The difference between paying Advantages Retirement Plan™ fees and the average Canadian mutual fund fees[61] during your retirement years could cost you more than $500,000 in retirement income. In the example below, the physician who is age 70 today and pays lower fees with Advantages Retirement Plan™ ends up with more than $500,000 in additional retirement income than the physician paying average fees by age 90.

     

    Illustrative example[62]

    • Physician is age 70 and has saved $2M before signing up with the Advantages Retirement Plan™
    • In retirement starting at age 70[63], draws down enough from their account to replace 60% of their pre-retirement earnings, where averaged over last 5 years before retirement was $200,000 (before tax and after overhead)[64]
    • Gross investment returns at 4.4% per year[65]
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Impact of fees for ages 65-90
    Low fees Average fees Difference
    Fee structure 0.6% of assets (+HST)[66] plus $10 per month (+HST) (similar to the cost of a large pension plan)[67] 2.1% of assets (the cost of an average Canadian mutual fund)[68] About 1.5% per year
    Projected retirement assets left at age 85 $1,138,519 $720,053 $418,466
    Projected retirement assets left at age 90 $583,901 $51,143 $532,757

     

    [60] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.14%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2017).
    [61] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.14%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2017).
    [62] Other assumptions include the following: 1) Physician defers Canada Pension Plan (CPP) until age 70 and receives CPP benefits; 2) Physician receives no Old Age Security (OAS). These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [63] Data from the Ontario Medical Association indicates that the median physician retirement age is 70.
    [64] The 60% is based on an income replacement ratio of 60%, meaning that it would be 60% of the user’s pre-tax, pre-retirement income. The 60% figure is based on a study that economist Keith Horner conducted for the federal government, which found that higher-income individuals such as physicians require a lower replacement rate than the often-cited 70% figure. While this study recommended a slightly lower replacement ratio of ~53% for higher-income Canadians, it did not factor in out-of-pocket health care costs such as home care and long-term care, so for conservatism we assume a slightly higher number. See Keith Horner, “Retirement Saving by Canadian Households” (Finance Canada, Report for the Research Working Group on Retirement Income Adequacy, December 2009).
    [65] The FP Canada Standards Council, which sets guidance for financial planners, suggests a gross return assumption of 4.41% for a diversified, conservative portfolio. See FP Canada Standards Council, “Projection Assumption Guidelines” (April 2019).
    [66]0.15% of the asset fee will be paid to OMA Insurance for cost recovery and services. Certain transaction processing such as withdrawals or transfers out may incur additional, one-time fees (+HST). If a plan member chooses to purchase an annuity starting at age 50 to receive some guaranteed lifetime income, the member would pay premium rates (updated quarterly to reflect changing market conditions) that are inclusive of a one-time commission of 1%, distributed to OMA Insurance, the broker of record, over three years. The commission on annuities is charged in lieu of the 0.6% annual fee, which is only applicable to non-annuity investments through the plan.
    [67] For more details on the typical costs of large pension plans, see Healthcare of Ontario Pension Plan, Common Wealth, National Institute on Ageing, “The Value of a Good Pension: How to improve the efficiency of retirement savings in Canada” (November 2018).
    [68] The mutual fund’s industry association reports that the average total cost of ownership for actively managed mutual funds in Canada as 2.14%. See Investment Funds Institute of Canada, “Monitoring Trends in Mutual Fund Cost of Ownership and Expense Ratios” (2017).
  • The plan in action: Deferring Canada Pension Plan benefits

    The Advantages Retirement Plan™ has educational articles to help you understand factors to consider before making decisions that may impact the quality of your retirement. You can also speak to OMA Insurance advisors to uncover further educational information.

     

    An important aspect of achieving retirement value for money involves developing a sound approach to government benefits. One example of this is the decision of when to take Old Age Security (Old Age Security) and Canada Pension Plan (Canada Pension Plan) benefits. Canadians can access Old Age Security as early as age 65 and as late as age 70. For each additional month you wait past 65 to take Old Age Security, your monthly benefits increase by 0.6% (annual benefits increase by 7.2%), up to a maximum of 36% at age 70.[50] Canadians can access Canada Pension Plan as early as age 60 and as late as age 70. If you take Canada Pension Plan benefits before age 65, your Canada Pension Plan benefit is reduced by 0.6% for each month you receive it before age 65 (7.2% per year). If you take Canada Pension Plan benefits after age 65, your monthly payment amount is increased by 0.7% for each month after age 65 up to age 70 (8.4% per year).[51] For many Canadians, especially those who, like physicians, have longer life expectancies, there can be significant benefits to deferring Old Age Security and Canada Pension Plan until age 70.[52] Yet fewer than 1% of Canadians employ this strategy.[53]

     

    In the case below, for a 64-year-old physician who lives until age 91, deferring Old Age Security and Canada Pension Plan until age 70 could be worth close to $60,000 (in future dollars, adjusted for annual inflation of ~2%).

     

    Illustrative example[54]

    • Physician is age 64 and has saved $2M before signing up with the Advantages Retirement Plan™
    • Receives maximum Canada Pension Plan as of 2019. This means that they have enough in salary-based earnings to max out their Canada Pension Plan contributions in at least 40 years between ages 18 and 65[55]
    • Receives no Old Age Security. This means they have lived in Canada for at least 40 years by the time they reach retirement, but their post-retirement income is too high to qualify for Old Age Security and is affected by the Old Age Security “clawback”[56]
    • Lives until age 91
    • 2% annual inflation

     

    Advantages Retirement Plan™ in action: Deferring Canadian Pension Plan benefits for ages 65-90
    Takes Canada Pension Plan at 65 Takes Canada Pension Plan at 70 Difference
    Projected annual Canada Pension Plan benefit at age 70 (2025) $15,603 $20,469 $4,866
    Projected annual Old Age Security benefit at age 70 (2025) Post-retirement income is too high to qualify Post-retirement income is too high to qualify n/a
    Lifetime Canada Pension Plan received $499,488 $558,779 $59,291

     

    [50] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/eligibility.html
    [51] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html
    [52] A number of well-known financial commentators have recommended a Canada Pension Plan and Old Age Security deferral strategy. See, for example, Fred Vettese, “Why You Should Wait to Age 70 to Start to Collect Canada Pension Plan Benefits,” Financial Post (Aug 16, 2016); Jonathan Chevreau, “The Secret to Paying Less Tax in Retirement,” Globe and Mail (Aug 31, 2017).
    [53] Fred Vettese, “Why You Should Wait to Age 70 to Start to Collect Canada Pension Plan Benefits,” Financial Post (Aug 16, 2016).
    [54] Canada Pension Plan and Old Age Security benefits grow by inflation. These numbers are for illustrative purposes only and are based on a limited number of assumptions as stated.
    [55] See https://www.canada.ca/en/services/benefits/publicpensions/cpp.html
    [56] See https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/recovery-tax.html