Do You Know Your Retirement Income Sources?
Do you know where your income will come from after you retire?
In an article titled 'Plan for Your Pay Cheques" (dated October 2011) by Jim Yih, a financial writer, and an article titled 'Retirement Income Sources – Know Them All' (dated March 2014) by the Investors Group at Foreveryoungnews.com, there are several sources of income a retiree may be able to count on. Here is a list of possible sources:
Employer-sponsored Pension Plans: In Jim Yih's article, it is stated "about 40 per cent of Canadians who are still working participate in a pension plan, and 56 per cent of retirees collect a pay cheque from a pension plan. For these people, pensions will form the foundation of their retirement income." In these plans, the saving was achieved by "employee and employer contributions."
Canada Pension Plan (CPP)/Quebec Pension Plan: The Investors Group's article states that the Canada Pension Plan/Quebec Pension Plan "pays a monthly pension to people who have been employed and contributed to CPP. Benefits are approximately 25 per cent of your average annual earnings during your working life up to certain limits. Benefits are indexed to inflation, are taxable, and can start at a reduced amount as early as age 60, or as late as age 70 with an increase."
Old Age Security (OAS): This program is funded out of general tax revenues. According to the Investors Group article, OAS provides "a basic monthly pension benefit at age 65. Benefits are taxable, adjusted for inflation, and 'clawed back' in increasing amounts as your individual net income climbs above a threshold amount. Individuals with lower incomes may also qualify for the Guaranteed Income Supplement (GIS)."
Individual Retirement Plans: When you retire, investments held in a Registered Retirement Savings Plan (RRSP) can be converted to income in different ways.
- Registered Retirement Income Fund (RRIF): In a RRIF, you withdraw money from the account instead of contributing to it. The Investors Group notes "a RRIF offers the flexibility of a wide range of investment choices as well as your choice of the amount you wish to withdraw each month."
- Annuity: According to the Investors Group, an annuity offers "the simplicity of a guaranteed lifetime income but can't be increased to keep up with inflation or escalating living costs."
Non-RRSP Investments: Jim Yih notes that you can create another source of income if you have investments outside of an RRSP; e.g. savings, bonds, stocks or investment property. He states "any asset that you own outside RRSPs may fall into this category. The income created from such investments might include interest, dividends and capital gains."
Tax Free Savings Accounts (TFSAs): In 2009, the Government of Canada introduced Tax Free Savings Accounts. Jim Yih states, "the capital contributed to the account is already tax paid." The advantage to a retiree is that " the income earned will never be taxed on withdrawal." TFSAs are "accounts where you would withdraw funds as needed and replace those funds in the account according to rules."
Service Canada has a Canadian Retirement Income Calculator. This online service will provide you with retirement income information, including OAS and CPP benefits. It also allows you to see the impact of increased savings. The calculator will help you better understand how each level of the retirement income system will contribute to your future financial security. Note: The calculator's results are rough estimates for information purposes only – not financial planning.
For more information on retirement income, check out the following titles at the Toronto Public Library:
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| How Much is Enough? |
The Real Retirement | The 7 Most Important Equations for Your Retirement |
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| Master Your Retirement | Retirement's Harsh New Realities |
For additional titles, search the Toronto Public Library catalogue with the recommended subjects Retirement – Canada and Retirement income – Canada.
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