Life Stages: Pre-Retirement

Are you worried you haven’t saved enough for retirement? Before you panic, don’t forget about Canada’s government pensions. Old Age Security (OAS) and Canada Pension Plan (CPP) were created as retirement income supplement programs to help Canadian seniors. For some retirees, these government pension programs make up the bulk of retirement income.

Understanding the rules around OAS and CPP can help you make better retirement savings and income choices today.

Old Age Security (OAS)

Old Age Security is a federal government pension program for seniors age 65 and older, however you don’t contribute to OAS directly. The OAS pension plan is funded by the “general revenue” of the federal government. Canadian seniors who meet the programs residency requirements (in most cases this means you’ve lived in Canada for at least 10 years since age 18) qualify to receive OAS, whether or not you’ve been working.

Your taxable net income impacts your OAS payments

Your OAS payment amount depends on your financial situation. As of 2018, the maximum amount is $7,000 per year per individual. If, however, your net income on line 236 of your tax return is $75,910 or more, you’ll receive less OAS. And if your net income is $122,843 or more, you won’t qualify to receive OAS pension. Qualifying individuals may prefer to defer receiving OAS payments until age 70, in which case payments will increase by 0.6% per month that you defer. OAS payments are taxable and adjusted to inflation. So as the cost of living increases, your OAS payment will also rise. For more information, visit Old Age Security.

OAS benefits programs

In addition to the regular pension payments, OAS offers three benefits programs to financially assist qualifying seniors.

Low-income Canadian seniors living in Canada may qualify for GIS in addition to their OAS payment. This non-taxable monthly payment amount depends on your annual net income or combined annual net income if you are married or have a common-law spouse. To qualify for GIS, your net income must be below the current maximum income threshold.

Canadians between the ages of 60 and 64 with a spouse who receives the OAS pension and who is eligible for the GIS may qualify for this allowance.

Widowed Canadians between the ages of 60 and 64 may meet the eligibility requirements for this allowance.

Canada Pension Plan (CPP)

The CPP is a worker-funded pension plan. All Canadians over the age of 18 working in Canada and earning $3,500 or more contribute to the plan. As of 2018, workers contribute 4.95% of the income earned between $3,500 and the annual earnings limit, currently $55,300. Employers also contribute 4.95%. The current maximum CPP monthly payment amount is $1,134.17.

The CPP has some flexibility when it comes to receiving payments. Depending on your financial situation, you may choose to start receiving reduced CPP payments as early as age 60 or defer it to receive a larger payment at age 70. Your payment will be reduced by 0.6% for each month you start your CPP payments prior to your 65^th birthday. If you delay it, your payments will increase by 0.7% for each month you defer payments up to age 70.

If you choose to keep working up until age 70 while receiving CPP, you may qualify for post-retirement benefits that will increase your total retirement income. You also have the option for pension sharing with your spouse or common-law partner to reduce the total income tax your family pays. And a legal spouse or common-law partner may receive the survivor’s pension when a contributor passes away.

Canada’s government pensions are just one part of your retirement income. Remember, OAS and its benefits programs, plus CPP were designed to act as income supplements for Canadian seniors. To learn more about navigating your finances in retirement, including RRIFs, TFSAs, company pensions and non-registered investments, talk to one of our Investment Professionals today.