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A comfortable retirement thanks to government benefits and incentives

Posted on Tuesday November 24, 2020

A comfortable retirement thanks to government benefits and incentives

After working hard all your life, you look forward to a well-deserved retirement. But when is the best time to retire? For some, the answer is simple: as soon as possible! If you want to retire before age 70, however, it’s not enough to work hard. You also have to work smart. And with the shortage of workers in many sectors and increasing life expectancy, the government has put in place financial incentives that may well encourage you to work a few more years.

Measures encouraging Canadians to work longer

It's hard to navigate the maze of government services, but it's worth the effort. The federal government increases pension benefits if you delay the age at which you start receiving them. In most cases, you’ll receive more if you decide to defer your first payment.

Both the Old Age Security (OAS) pension program and the Canada Pension Plan (CPP) allow you to defer the date of your first benefit payment by 60 months (five years) from the date you're entitled to it. For example, your OAS benefit increases by 7.2 Sounds good, doesn't it?

A smart strategy for people in certain income brackets

OAS is a federal program that provides benefits to all Canadians beginning at age 65, regardless of whether they’ve worked or not. The monthly benefit is based on the number of years lived in Canada after age 18. But not everyone receives the same amount. In 2020, people with income over $79,054 must repay part or all of the benefit. So, who is the deferral strategy for?

Deferring the first OAS payment to age 70 may be a good idea for people whose annual income is high enough to disqualify them for the Guaranteed Income Supplement but below the threshold at which they would be required to repay part of their OAS benefit.

Continue to create wealth or live on your assets?

If you like your job, why not consider staying on for a few more years? Your CPP benefit is based on your average earnings over your working life, your contributions, and the age at which you take it. While it's possible to start receiving benefits as early as age 60, you may want to wait until you're 70, as your monthly cheque may be over $1,000 by then.

Of course, if you keep on working until age 70, you'll continue to contribute to the CPP. But these additional contributions become post-retirement benefits (PRB) that will be added to your retirement income, even if you were already receiving the maximum. This benefit will be paid automatically for the rest of your life.

Unless you have a generous defined benefit pension from your employer, extending your working life can be a smart option. But nothing replaces a detailed analysis of your overall income situation to help you see clearly and build an effective financial plan.

Don’t defer past 70

After the age of 70, there's no longer any advantage in deferring your first payment. On the contrary, you risk losing out on retroactive benefits. So don't go past it!

Is retirement at 70 for you?

There’s no way around it. Establishing a budget and having a good financial plan are the two crucial steps to ensuring a comfortable retirement. Are you rich without knowing it?

According to an old Greek proverb, the work of youth is the foundation for the repose of old age. Regardless of your age, make a retirement budget and adjust your current budget based on how much you need to save. You’ll have to determine about how much income you’ll need in retirement to maintain the standard of living you want. Use a budget calculator and think about which expenses will disappear (such as the mortgage) and which ones will appear (such as health care).

There are a few caveats for holders of well-funded RRSPs: contributions can be made up to age 71, at which point disbursements must begin. If you start withdrawing from your RRSP late, the monthly amounts will be high, and you'll pay more tax. In other words, it's advantageous to work longer if you don’t have much in savings, but disadvantageous if you already have a lot. It would be a shame to work a few more years only to hand it all over to the government. Something to think about!

As long as you’ve got your health!

Working to be happy is the best job. If you have a job that doesn't cause you undue stress and allows you to remain an active member of the workforce for longer, it may contribute to your happiness. What’s more, Atlantic Canadians appear to be among the . Feeling connected to and having an impact on the world generally brings a deep sense of satisfaction.

However, be careful not to burn yourself out. The extra years at work shouldn’t put a strain on your health. Overly long days, poor ergonomics and difficult working conditions aren’t good for you. If you decide to continue working beyond age 65, make sure that your work brings you more good than bad.

For a realistic assessment of your situation, please don't hesitate to make an appointment.

Savings and investment management: Mutual funds are offered through Credential Asset Management Inc. Mutual funds, other securities and securities-related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered trademark of Aviso Wealth Inc.

This article is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell mutual funds.

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