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Early retirement 101: how to narrow the pension income gap

Depending on which pension you contribute to (OTPP/OMERS), your road to retirement typically involves charting a course to reaching your 85 or 90 factor.

After all, arriving at that magic number means being able to retire with your full pension in tow.

However, if you, like many other education members, have ever considered retiring early, you’ll know that this causes a bit of a pension income gap in the process. The size of that gap naturally depends on how far (or how close) you are to reaching your qualifying factor. Yet considering that ‘retirement life’ includes many of the same day-to-day expenses as ‘working life’, any kind of an income gap during those after school years has the potential to be too much.

But that doesn’t mean that retiring sooner is totally out of the realm of financial feasibility.

Like purchasing a home or sending the kids to college, jumping off the education career train a few stops early is a lesson in cash flow management. Managing that flow successfully requires a careful amount of financial planning. Because when all is said and done (and that retirement notice is handed in) you don’t want to be in the awkward position of realizing you should have stayed on in your job a little longer.

To maximize your cash flow when taking early retirement, here’s how you can go about narrowing any pension income gaps:

#1: Identify how much of a gap you’re looking at.

No more staying up all hours marking papers and developing lesson plans. Reclaiming your time is definitely one of the more enticing prospects of taking early retirement. But it’s important not to get so caught up in the excitement that you forget to factor in the financial implications.

In order to determine what kind of pension income gap you’re (potentially) dealing with, you’ll need to subtract your regular monthly expenses in retirement from your net monthly pension income.

Be sure to include any additional net retirement income sources, such as a secondary job, or regular withdrawals from investments (i.e., monthly income fund). Doing the math beforehand will enable you to see what kind of an income gap you’re looking at, which will then enable you to take the necessary steps to fill it.

You have a pension, but will you have enough to retire?

Use our Pension Income Gap Calculator to find out you’re on track to fund your retirement dreams.



#2: If you still have debt, re-evaluate what you owe and consider consolidating.

Carrying debt into retirement is never the ideal scenario, yet 20% of Canadian retirees are still paying down their mortgages, while 66% continue to carry balances on their credit cards.

To see how much of your pension income will be eaten up by debt:

  • Create a master debt list (i.e., mortgage, loans, credit cards, etc.)
  • Beside each item, write down the total amount you owe, as well as the minimum monthly payment
  • Then add up the total minimum monthly payments—if this number exceeds 36% of your monthly pension income, you might want to consider consolidating

To further narrow the pension income gap, here’s what you need to know about debt and how to pay it off.

#3: Budget consistently (and tighten spending if needed).

Budgeting is a major component of your financial plan at every stay of life. Not only can it be used to better manage your spending habits, but it can also help you to maximize overall cash flow if you’re expecting a pension income gap as a result of taking early retirement.

To narrow the gap, you can maximize your budget by:

  • Finding a part-time job to bridge the difference (a very common thing to do for retired educators)
  • Living within your means (i.e., being consistent about sticking to your budget)
  • Looking for ways you can cut down on expenses
  • Finding someone to keep you accountable when it comes to spending (i.e., a spouse, family member, or an educator-specific financial specialist)

Keep retirement spending on track by using our handy budget calculator

#4: Consider tapping into your investments.

If you’ve been investing your money over the years, early retirement is when those investments can really pay off. For example, tapping into your TFSA is an instant way to cover the difference left by any pension income gaps without any tax implications.

You could also convert some of your RRSP money to a RRIF to start receiving income.

During the years when you’re living with an income gap, you could choose to receive more than the minimum RRIF payments. Then, when other income sources kick in (i.e., CPP, OAS), you can roll those payments back to the minimum amount (keeping in mind that once you convert your RRSP to a RRIF, making the minimum withdrawal is mandatory).

Education members need to think twice about generic advice when it comes to the pension-income tax credit

When it comes to taking early retirement, there are plenty of financial implications to consider.

That’s where Educators Financial Group can help.

Since we fully understand the specifics of your pension income, we can work with you to identify and then minimize any pension income gaps. Because the only gap in retirement you should have to focus on filling is time.

Contact us to put your early retirement plan into place.


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What are your retirement goals – travel, gardening, time with your grandkids? As an education member you’ve worked hard for your pension, but will it be enough?

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