What will you live on when you are retired? Will it be enough? What Can you do about it?
We’ll try to answer those questions in a three-part series.
There are three main sources of retirement income in Canada:
- Public Benefits: Old Age Security, Guaranteed Income Supplement, Canada/Quebec Pension Plan
- Workplace Pensions
- Personal Savings (including RRSPs)
Let’s start with the Public Benefits:
a) Old Age Security (OAS)
This is a universal benefit for long-time Canadian residents, starting between age 65 and 70. At age 65, you get $564 a month (indexed to the cost of living, quarterly). If you postpone collecting OAS, you will get more. Your OAS rises 0.6% for each month you wait, or 36% if you postpone to age 70.
If your annual income is over $71,592, there is a 15% “clawback”. The full OAS is clawed back if your income is over $116,103.
If you turn 65 after 2023, the eligibility age will gradually increase, to 67 by 2029.
b) Guaranteed Income Supplement (GIS)
While the OAS has a clawback if you have a relatively high income, the Guaranteed Income supplement, which is also payable from age 65, is reduced almost from the first dollar of other income .
The monthly maximum GIS (indexed to the cost of living, quarterly) is $764 for a single person and $1,014 for a couple. This is reduced by 50% of pension income (other than OAS) and employment income over $3,500 annually. There is also a Spousal Allowance for low-income partners aged 60-64.
If you had no other income source than OAS and GIS at age 65, you would receive:
Single: ($564+$764) = $1,328 monthly or
Couple: ($1,128+$1,012) = $2,142 monthly
StatsCan Low Income Cut-offs (commonly called the “poverty line”) vary by the size of the family and the size of the city you live in (the bigger the city, the higher the cost). Canadian annual poverty line incomes range from approx. $17,000 – $24,000 for one person and from $21,000 – $30,000 for two people. Full OAS and GIS are not enough to bring a single senior up to the poverty line anywhere, while they do bring a couple up to the poverty line for a rural area or a small city (but not a large city).
c) Canada/Quebec Pension Plan (CPP/QPP)
This is a federal/provincial pension plan paid for by matching employer and employee contributions. Your benefits are based on your contributions over your working life, after age 18. To be eligible for the maximum retirement benefit you need to have earned at or above the national average wage for most of your working life.
You can start to draw CPP/QPP retirement benefits any time between 60 and 70 years of age. If you start before age 65, you are penalized, with a reduction of 0.56% per month (increasing to 0.6 by 2016). If you postpone drawing benefits past age 65, you get an increase of 0.7% per month.
If you are eligible for the maximum CPP/QPP in 2015, and are
- Retiring at age 60, you would receive $689 per month
- Retiring at age 65, you would receive $1,038 per month
- Retiring at age 70, you would receive $1,474 per month
CPP/QPP benefits are indexed (annually) to the cost of living. CPP/QPP benefits also reduce your eligibility for GIS.
So, if you were 65, and eligible for OAS, GIS and the maximum CPP/QPP, you would receive
Single: $564 + $245 (reduced GIS) + $1,038 = $1,847 monthly or 22,164 annually
Couple (one-earner): $1,128 (2 x OAS) + $495 (reduced GIS) + $1,038 = $2,661 monthly or $31,932 annually
Couple (two-earner): $1,128 + (no GIS) + $2,076 (2 x CPP/QPP) = $3,204 monthly or $38,448.
It looks like the public benefits do a pretty good job of getting most Canadian seniors up to the poverty line. A few things to remember, however:
- These figures assume one or both earners have worked at or above the average wage for most of their working life. Lower CPP/QPP contributions would mean lower benefits. In fact, the average CPP/QPP retirement benefit being paid is now only $526 per month.
- Retiring early would cut these benefits, and OAS and GIS do not start until age 65 (moving to 67 if you are currently under 50).
- OAS and CPP benefits are taxable (GIS benefits are not), so your spendable income would be lower.
But what if you want to do better than just get to the poverty line? The next instalment will talk about how you can maintain your standard of living in retirement.
CLC campaign for Retirement Security for All.
Over 60% of Canadians are wholly dependent on the public pension system for their retirement income, and this percentage is likely to grow as workplace pension coverage continues to shrink. To ensure that all Canadians will in the future be able to retire with dignity, the Canadian Labour Congress national campaign, “Retirement Security for All”, is pressing for three reforms:
- An immediate Increase in the GIS to bring all seniors above the poverty line.
- Keep the eligibility age for OAS and GIS at 65.
- Gradually phase in a doubling of the CPP/QPP Retirement benefit.
These should be a key issue in the coming federal election. If successful, the campaign will do a lot to change these numbers for the better.