Sources of retirement income
Canada Pension Plan (CPP) or Québec Pension Plan (QPP)
The Canada Pension Plan (CPP) and Québec Pension Plan (QPP) provide monthly payments to people who contributed to the plans during their working years.
The amount you'll get every month depends on how long you contributed to the plan and how much you contributed. It also depends on the age when you start getting your CPP or QPP retirement pension.
Old Age Security (OAS) pension
The Old Age Security (OAS) pension is a monthly benefit for Canadians over the age of 65 years old. You can get Old Age Security pension benefits even if you're still working or have never worked. You don’t need to contribute to the OAS pension in order to benefit from it.
Guaranteed Income Supplement (GIS)
The Guaranteed Income Supplement (GIS) provides a monthly non-taxable benefit to Old Age Security (OAS) pension recipients who have a low income and are living in Canada. You will automatically be considered for the GIS as long as you file your taxes each year.
Employer-sponsored retirement and pension plans
An employer pension plan is a registered plan that provides you with a source of income during your retirement. Under these plans, you and your employer (or just your employer) regularly contribute money to the plan. When you retire, you'll receive an income from the plan.
Speak to your human resources staff member, union representative or pension plan manager to find out how your employer-sponsored pension plan works.
Defined benefit pension plans
In defined benefit pension plans, your employer promises to pay you a defined amount of money after you retire.
Usually both you and your employer contribute to the plan. Your contributions are pooled into a fund. Your employer or a pension plan administrator or sponsor invest and manage the fund. You don’t have to make any investment choices.
The amount you get when you retire is usually calculated based on your pay and the number of years you contributed to the plan. It's a set amount that does not depend on how well the investments perform.
Defined contribution pension plans (DC plans)
In defined contribution pension plans, you and your employer pay a defined amount into your pension plan each year.
Usually you contribute a set percentage of your pay. Your money is put in an account in your name. Any money earned by your investments goes into your pension account. You may want to consider contributing the maximum amount of money that your employer will match. That way you can fully benefit from your employer’s contributions to your pension plan.
The amount of income you get when you retire depends on how much money was contributed by you and your employer into the pension plan. It also depends on how much money your investments earned or lost. This means the ups and downs of the stock market affect your pension income.
If you've switched jobs, you may have two or more smaller pensions from different employers. You may be able to switch your old pension to your new plan. Talk to a financial professional or your human resource advisor to understand what choices you have.
Group Registered Retirement Savings Plans (Group RRSPs)
A group Registered Retirement Savings Plan (Group RRSP) is a retirement savings plan sponsored by your employer.
You open an individual RRSP but pay into it through your employer. You contribute through regular deductions from your paycheque. Your employer may also contribute to your RRSP.
The details of group RRSPs vary by the employer. For more information on your Group RRSP, talk to your human resources, union, or pension plan representative.
Pooled registered pension plans (PRPPs)
PRPPs are mainly for people who don’t normally get a workplace pension, such as employees of small-sized and medium-sized businesses and people who are self-employed.
PPRPs are similar to defined contribution pension plans (DC plans). In defined contribution plans, you and your employer contribute a set amount to your pension each year. However, with PRPPs your employer does not have to add money to the plan. You can ask not to be part of your employer’s PRPP.
With PRPPs, the money you get when you retire depends on how well the investments made as part of your plan perform.
Voluntary Retirement Savings Plan
If you work in Quebec, you may be eligible to join a Voluntary Retirement Savings Plan. These savings plans are similar to PRPPs. They're available for employees who don’t have access to a workplace pension and to people who are self-employed.
Personal retirement savings and investments
You may have other sources of income during your retirement. Two common sources of retirement income are Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs).
You may also receive income from other sources, such as investments like stocks and bonds or personal savings accounts.
Registered Retirement Savings Plans (RRSPs)
An RRSP is a savings plan designed to help you save for retirement. RRSPs help you grow your money while offering tax benefits. For example, you may pay less tax at the end of the year if you contribute to your RRSP. You also don’t have to pay tax on the money you earn as long as it stays in your RRSP.
There is a maximum amount that you can contribute to your RRSP each year.
Money taken out of an RRSP is considered income. This means that you will have to pay tax on it. This can also impact the amount of money you receive from government benefits, such as Old Age Security and the Guaranteed Income Supplement.
Tax-Free Savings Accounts (TFSAs)
A TFSA is similar to a regular savings account. However, it can also hold a wide range of investment products and it allows your savings to grow tax-free. This means that you don’t have to pay tax on the interest, capital gains or dividends your money earns. You also don’t have to pay tax when you take money out of a TFSA.
Money earned or taken out of a TFSA is not considered income. This means that it will not impact the amount of money you receive from government benefits, such as Old Age Security and the Guaranteed Income Supplement.
There is a maximum amount that you can contribute to a TFSA each year.
Converting your savings into income
You'll need to decide how you want to convert your savings and investments into retirement income.
After December 31 of the year you turn 71, you can no longer hold or add to a Registered Retirement Savings Plan (RRSP).
Before that time, you can choose to transfer your RRSP into:
- a Registered Retirement Income Fund (RRIF)
- an annuity
- cash (this would mean paying taxes on the full amount of your RRSP)
Registered Retirement Income Fund (RRIF)
An RRIF lets you withdraw your RRSP savings as income for retirement. You can choose the types of investments you hold in this plan. You don’t pay taxes on the money you keep in an RRIF until you take it out.
You need to take out a minimum amount of money from your RRIF every year after you turn 71. The amount you must take out is determined based on your age.
There is no maximum on how much you can take out every year.
An annuity is a form of insurance or investment. You make a lump-sum payment up front and then receive a fixed amount of money each year for a certain period of time. Annuities are available through insurance companies.
Annuities bought with locked-in funds must follow the pension laws in your province or territory.
This type of annuity guarantees you a fixed monthly income for as many years as you decide, up to age 90.
Your estate receives all of your payments if you die before your term-certain annuity expires.
This type of annuity guarantees you a fixed monthly income for as long as you live.
In most cases, your annuity payments stop when you die and no money goes to your estate.
Some life annuities have extra options, including:
- joint and survivor annuities that continue to make payments to your beneficiary or estate after you die, for a certain number of years or the lifetime of your beneficiary
- annuities that keep pace with inflation by gradually increasing your income
These extra options will lower the amount of money you get each month from the annuity.
Life income fund (LIF), locked-in retirement income fund (LRIF), prescribed retirement income fund (PRIF), or restricted life income fund (RLIF)
These funds provide you with retirement income. They have a purpose similar to Registered Retirement Income Funds (RRIFs).
If you leave a job where you had an employer-sponsored pension plan, your pension money is moved into a locked-in account or savings plan until your retirement.
Your pension money may be moved into one of the following:
- a locked-in retirement account (LIRA)
- a locked-in retirement savings plan (LRSP)
- a restricted locked-in savings plan (RLSP)
Once you retire, you can buy a LIF, LRIF, PRIF, or a RLIF using money from a locked-in account or savings plan.
You only pay tax on an LIF, LRIF, PRIF, or RLIF when you take money out. All the funds have a minimum amount you need to take out every year. Some have a maximum limit on the amount you can take out each year.
The rules about these funds are different depending on the fund and the province or territory where the fund is based. Note that your employer’s pension plan may be registered in a different province or territory than where you work or live.
For more information speak with a financial professional with experience in this field.
Getting money from your home
If you own your home and you're looking for additional income in retirement, you can use the equity you built up in your home.
Selling your current home and buying a smaller one
This can provide you with extra money in retirement. This is often called downsizing.
Remember that there are many fees and costs associated with buying and selling a home.
Getting a reverse mortgage
A reverse mortgage allows you to get money from your home’s value without having to sell your home. Reverse mortgages are available to homeowners 55 years old and older. The costs associated with a reverse mortgage are usually high compared to a regular mortgage. Before choosing this option, make sure you understand if this type of loan is best for you.
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