Q.
I am 52 years old and am being laid off this year due to my company closing its doors. Job prospects are not looking good so far. I got a late start in saving for
retirement
, and didn’t start putting money aside until I was 40. I have less than $250,000 currently set aside in registered retirement savings plans (
RRSPs
), no company pension to draw on in retirement and am now worried about what the future may hold. What should I do in my situation?
—Thanks, Ryan L.
FP Answers:
Hi Ryan. I’m sorry to hear you are being laid off. I hope something new and better comes along soon. Without understanding who you are, your current circumstances and what you want to achieve, I can’t advise you what to do in your situation, but maybe I can ease your retirement worries a little.
At age 52 with $250,000 in RRSPs you are doing OK and you should feel good about what you have been able to save. Are you familiar with the rule of 72? You can use this rule to determine how long it will take for your money to double by dividing 72 by the interest rate you are earning on your investments. If you anticipate your investments earning seven per cent per year then it will take about 10 years to double your money (72/7% = 10 years). At age 65 you should have about $500,000 in RRSPs.
Having $500,000 in RRSPs at age 65 is a good base to draw on for your retirement income and you will supplement it with
Canada Pension Plan
(CPP,)
Old Age Security
(OAS), and part-time work if you like. Your coming challenge is to keep it intact during your time of unemployment and then get back to building it and adding to your CPP. You will do this by setting some money aside now, managing your severance and 2025 taxes and preparing your RRSP portfolio.
If your job prospects are not good, as you suspect, then try reducing your spending now and putting some money aside in a tax-free savings account (TFSA) for emergencies. In addition, consider moving some of your RRSP money to a high interest savings account. The amount to move to high interest savings is the amount of money you anticipate needing between the time your Employment Insurance (EI) runs out and the time at which you take on a new job. Ideally, you are not going to touch your RRSP but if you are forced to, you don’t want to draw from your RRSP during a market crash. Once you are back working you can reset your RRSP investment portfolio.
You didn’t mention anything about a severance payment but I’m guessing you will receive one. If you are lucky enough to immediately find satisfying employment you can use your severance for retirement savings or debt repayment.
Once you are laid off apply for your EI right away even though it won’t start until your severance ends. Do this to avoid any income gaps, which may tempt you to draw on your RRSP.
Remember, your severance and EI are both taxable incomes. Your 2025 income will be a combination of your employment income, severance income, and possibly your EI. With three different income sources for 2025 it is very possible the amount of tax withheld will be less than the amount owing. Do your best to estimate your 2025 income and the taxes owing. There are tax calculators, such as
LLP, that will help you work out the tax. If you are going to owe more than what will be held back then save a little money so you are prepared and won’t draw from your RRSP.
If you are thinking about drawing from your RRSP while you are in a lower tax bracket and adding the money to a TFSA, don’t. I suspect you will still have a good income this year in 2025. It is possible you will have a low income in 2026 if your severance and EI end, but you may get a job later in 2026. If you had a small amount of money in your RRSP it may make sense to draw it out to try to reduce your taxable income after age 65, but you have $250,000.
The sooner you are back working the sooner you and your employer will be contributing to your CPP. Don’t shortchange the value of CPP because a guaranteed indexed pension in retirement goes a long way to providing comfort and easing worries.
You will keep disability insurance (DI) through CPP, unless you are off for a long period of time. This is important because a disability with no coverage will derail the best of plans. If you have contributed to the CPP in four of the last six years, or have contributed for at least 25 years, including three of the last six years, you will still be eligible for disability insurance if you become disabled. This means you have to find a job before about age 58 before you lose your CPP/DI protection.
Ryan, I know it is tough losing a job and I wish you all the best in quickly finding new and rewarding work.
Allan Norman, M.Sc., CFP, CIM, provides fee-only certified financial planning services and insurance products through Atlantis Financial Inc. and provides investment advisory services through Aligned Capital Partners Inc., which is regulated by the Canadian Investment Regulatory Organization. He can be reached at alnorman@atlantisfinancial.ca.
