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What are your income sources for retirement in Canada?

Find out everything you need to know about income sources during retirement.
Close up of a senior couple getting help from a financial advisor

Almost everyone wonders how they would fund their lifestyles in retirement. As a Canadian resident who has contributed to the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP), you should expect to receive some pension income depending on your age, how much you earned and contributed to the plan, and how early you started contributing to one of them.

There are other ways to plan for retirement income in addition to the CPP and QPP. Keep reading to explore your income sources when you retire.

Canada Pension Plan or the Quebec Pension Plan

When you start receiving income from a Canada Pension Plan or Quebec Pension Plan, the Canada Revenue Agency (CRA) will tax your income at your marginal rate in retirement. The CRA gives you the option to deduct taxes monthly before you receive your pension income or pay taxes after you receive your income quarterly.

You must be at least 60 years old to start receiving pension income from the CPP. If you delay receiving CPP income until a later age, your pension income amount will be higher. As of 2023, if you start receiving the pension income at 65, you can get an amount as high as $1,306.57. 

Old Age Security (OAS), Guaranteed Income Supplement (GIS) and Allowance

You can also receive pension income from the Old Age Security (OAS) or a Guaranteed Income Supplement (GIS). You must be at least 65 years old to start receiving income through the OAS. 

You and your spouse’s or common-law partner’s previous year’s income in retirement determine if you qualify to receive pension income from the OAS, Guaranteed Income Supplement (GIS), and Allowance. 

Depending on if you're single, married, in a common-law partnership, divorced, or widowed, the annual income criteria and how much you receive from the Old Age Security varies.

You can receive Allowance pension income from ages 60 to 64. As of January to March 2023, your joint income must be lower than $38,592 to receive the Allowance pension income, and the maximum monthly amount you can receive is $1,305.71.

The OAS pension income is taxable at your marginal tax rate. However, if you qualify for the Guaranteed Income Supplement or Allowance as a low-income pensioner, you do not have to pay tax on this pension income.

Registered Retirement Savings Plan

The Canadian government has provided the RRSP for retirement saving purposes and limits how much you can contribute to your account in a year.  Your RRSP contribution room depends on the annual limit set by the CRA, your previous year’s net income, and any other pension adjustments.

When you contribute to your registered retirement savings plan, you can claim tax deductions to reduce your taxes. By contributing to an RRSP, you defer your taxes. What this means is when you withdraw from your RRSP in retirement, you will pay taxes on your withdrawals. 

Your retirement income from your RRSP depends on how much you contributed to it and how much your investments in the account grew. There are no restrictions on withdrawing from your RRSP at any time. However, by the end of the year that you turn 71, you must convert your registered retirement savings plan to an annuity, a registered retirement income fund (RRIF), or withdraw all your money from the account.

Employer-Provided Retirement Plans

If you work for an employer that provides a group registered retirement saving plan, also known as a group RRSP or another type of pension plan, your contributions to the plan will provide a source of income for you when you retire. 

Some employers offer a contribution match when you contribute to a pension plan they administer. This is a great way to get free monetary benefits that count towards your retirement.

If you leave your employer, you may have access to the employer contributions depending on the company’s policy. Some employers allow you to vest the company contributions after you have worked for a specified period, usually one to two years.

When you leave an employer, you can transfer your pension to a Locked-in Retirement Account, also known as a LIRA. A LIRA generally locks in your pension contributions until you retire. At retirement, you can convert your locked-in retirement account to an annuity or a Life Income Fund (LIF) to receive pension income.

Other Income Sources

If you have investments in other unregistered accounts or rental properties, your income from these assets can support your lifestyle in retirement. You may also have personal savings that you can use when you no longer work. 

It is essential to plan and understand your sources of income in retirement. Speak to a financial advisor to help determine how to fund your lifestyle when you retire.

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