Retirement Income Planning: CPP, Old Age Security (OAS), RRSP’s & Pension Plans
As we hit a certain age in life thoughts of retirement and what that might look like come to our minds and may cause a bit of worry. The dream of ‘Freedom 55’ may not be very realistic for most people, but planning for retirement as early as possible will help to alleviate the stressful questions of not only ‘Will I have enough to live on and still do the things I love to do?’ but also ‘Can I even AFFORD to retire?’
Here are a few helpful thoughts about retiring and retirement income planning: Canada Pension Plan (CPP), Old Age Security (OAS), Guaranteed Income Supplement (GIS), and Retirement Savings Plans (RSPs.)
Retirement planning requires some basic homework. Knowing how much it costs you to live is a good place to start. If you haven’t already tuned up your budget get on it! Getting to know how much you are spending on the basic costs of living will help you figure out how much income you will require to meet your needs.
Bear in mind that if you have hobbies or participate in sports or other types of entertainment, these expenses will need to be added into the mix when budgeting for retirement. Expenses for activities that you were able to afford when working may no longer fit into the retirement budget. Making lifestyle adjustments can be difficult, but considering these adjustments ahead of time can ensure you are able to maintain an active and enjoyable retirement.
Knowing what it costs you to live the life you need and want to live in retirement, is the first step in planning for the future. The next step is collecting information on the income you can expect to receive based on resources available now.
Canada Pension Plan (CPP)
The Canada Pension Plan (CPP) is a monthly taxable pension available to you if you made contributions during your working life. In order to help with planning your retirement income, it is a good idea to get a copy of your Statement of Contributions by either contacting the Canada Pension Plan directly or online by signing up for a My Service Canada Account through the Government of Canada website.
You can apply for Canada Pension as early as age 60 or as late at age 70. When to apply for Canada Pension will depend upon various factors, including your financial situation, your health and life expectancy, and taxes.
If you decide to apply for your Canada Pension earlier than age 65, the amount you receive will be reduced by 0.6% per month. Except for minimal annual increases, or if you continue to work and make additional contributions to CPP, your pension amount will not change much once you apply.
Some folks may decide to continue to work and delay applying for their Canada Pension until after they turn 65 to maximize how much they will receive.
Whenever you decide to apply for your Canada Pension, it can take quite some time for your application to be processed, so you should apply well before you need your pension to start.
Old Age Security (OAS)
You may be eligible to receive Old Age Security (OAS) when you turn 65. Like the Canada Pension, this is a monthly taxable pension. However, the amount you can receive is based on how long you have lived in Canada since turning 18, rather than on your employment history.
If you choose to continue to work after you turn 65, you can delay receiving Old Age Security for up to 60 months, which will increase your pension by 0.6% per month. So the longer you hold off, the more OAS you will receive. This is an important consideration as OAS payments may have to be paid back if your annual income is too high.
Guaranteed Income Supplement (GIS)
In addition to the OAS, you may also qualify for the Guaranteed Income Supplement as well as the new Allowance for seniors. The Government of Canada website offers information and guidelines to determine how much you can receive.
This is normally available if your income is modest. You will need to apply for it and indicate what your income was for the prior year. It can be a helpful addition to your budget so you should definitely check it out.
Many senior Canadian’s who accepted CERB money have recently been surprised to find out that they no longer qualify for the GIS supplement. This is due to the CERB increasing their annual income such that they no longer qualify. They will have to re apply once their next personal tax return is completed.
Retirement Savings Plans (RSP’s)
Once you have determined how much Canada Pension and Old Age Security you are entitled to receive, you can then have a look at how much you can expect to receive from any Retirement Savings Plans.
Some plans will have set amounts that you will receive each month, while others you will have to actually request to be withdrawn. If you don’t already have this information, it is wise to contact the plan administrator as soon as you can to find out exactly how your particular plan works and what action you need to take to access your funds.
It is important to note that the Canada Pension and Old Age Security do not have income taxes automatically deducted from them. Retirement Savings Plans may have some tax deducted, but it may not be enough when you add the other sources of retirement income to the picture.
Once you have collected all the information you can regarding the income you expect to receive in retirement, it may be well worth the time and money to consult with a Chartered Professional Accountant. They can help you determine how much tax you will need to have deducted from your retirement income in order to avoid a big tax bill the year you retire.
Another option would be to take whatever tax is owed on the filing of your tax return, divide by twelve months, and then contact CPP and ask them to withhold that additional amount in taxes each month.
Have you Heard About SAFER?
Sometimes when we are talking with people that are already retired and have modest income we notice that they are struggling with their rent. The Province of BC via BC Housing has put a program in place to assist seniors with modest income. It is called SAFER which stands for Shelter Aid For Elderly Residents. You can find out if you qualify on their website.
We have seen people apply and receive more than $200 per month so it is worth checking out.
Carrying Debt Into Retirement
If you are about to retire, or have already retired, and you are carrying a debt load you are not alone. Unfortunately, this can make for an impossible situation especially if your income has now dropped
If you find yourself in a situation where retirement has become very stressful because your income just hasn’t been enough to keep up with the costs of living and debt obligations – or you ended up with a big tax bill after retirement, you may want to speak with a Licensed Insolvency Trustee to discuss the options that are available to you.
Rest assured that if you file a Consumer Proposal or a Bankruptcy you will not lose your pension.
There is always a solution to help you deal with your debts and get you back on track to enjoying retirement once again.
Contact Us – We Are Here to Help!
Please feel free to take advantage of our complimentary initial assessment. At this confidential meeting, we will take a look at your financial situation and provide you with feedback including what options might be available to you. Contact one of our convenient locations to make an appointment.