Hello everyone, and welcome to the Retiring Canada Podcast. In today’s episode, we're going to discuss what to do if you don’t have enough money to retire.
Specifically, we are going to discuss:
- How to maximize your government benefits
- The potential amounts available based on your household income
- The importance of filing taxes and applying for these benefits
- The consideration of selling your largest asset to fund your retirement
- And, as always, some action items for you to consider
Let’s get into it.
Retirement can make many Canadians anxious. For some, the thought of whether a million dollars is enough to retire is a common concern, while others worry about managing an unexpected $1,000 expense. In our world, we help Canadians manage their investments, providing value to our clients in a way that outweighs the fees they pay, ensuring a sustainable retirement.
But what if you don’t have enough money to access a fee-based Certified Financial Planner (CFP) professional? There are fee-only advisors who charge a flat or hourly fee, but this can be prohibitive for some. Hourly fees from a CFP can range from $200 to $1,000 or more, while a flat planning fee can cost $1,500 or more, depending on complexity.
So, what do you do when you are near what most people consider a retirement age, but don’t have the assets to actually stop working? For today’s episode, let’s define retirement age as 65.
# 1. Keep Working if Possible
The most obvious solution is to keep working if your health allows it. Many Canadians face this reality. Continuing to work can help maintain access to employer-provided health benefits like extended health care, prescription drugs, dental, and vision coverage, which can protect against unexpected health-related expenses.
If you are over 65 and still working, you can choose to continue paying into the Canada Pension Plan (CPP) or stop contributions. Generally, continuing contributions to build up your pension is advisable, as your employer is also required to contribute on your behalf.
# 2. When to Start CPP
For most Canadians with retirement assets, delaying CPP as late as possible is best. However, if you do not have sufficient means or have a lowered life expectancy, starting CPP as early as age 60 may be necessary. Starting CPP before 65 reduces your benefit by 0.6% per month before 65. If you start at age 60, this results in a 36% permanent reduction. For example, if your full pension at 65 was $1,000/month, starting at 60 would reduce it to $640/month before indexing.
To find out how much you could receive, sign into your My Service Canada Account or submit a paper request to CRA. I will expand on this topic in a future episode, so hit the subscribe button to get notified.
# 3. Old Age Security (OAS) and Guaranteed Income Supplement (GIS)
If you haven’t worked much or are new to Canada, you might not have much CPP pension to rely on. If you are 65, you can start your Old Age Security (OAS) Benefit, funded by the government’s general revenues. This monthly taxable pension depends on how long you have been a Canadian resident. If you have been in Canada for at least 40 years after age 18, you would get the full amount: $691 (2023) for ages 65-74 and $760.10 for 75 and over.
If you have lived in Canada for 20 years, you would receive half of this benefit. Additionally, you may qualify for the Guaranteed Income Supplement (GIS), a non-taxable monthly payment for low-income OAS pensioners. The amount depends on your OAS and household income. For single, widowed, or divorced pensioners with income less than $20,952, you could receive a monthly non-taxable benefit, decreasing as your income increases.
The Allowance and Allowance for Survivor benefits extend GIS further. Eligibility for the Allowance depends on age, residency, and household income. The Allowance for Survivor is for those aged 60-64 whose spouse or common-law partner has died and meets certain income criteria.
Example Scenario
Let’s assume a couple, aged 65 and 63. The older spouse earns $23,000 a year and started OAS at $7,000 annually. Both have started their CPP, making a combined $9,000. Their household income is $40,000 pre-tax. Applying GIS and Allowance benefits based on this income, they might also receive $2,900 annually in GIS and $2,200 for the Allowance, bringing their pre-tax income to just over $45,000.
This simplified example does not consider individual deductions, province of residence, or tax circumstances, so take it as an illustration only. Filing taxes, even with low or nil income, is crucial for receiving these benefits.
# 4. Additional Income Sources
Consider donating plasma regularly. If eligible, you could receive up to $400/month. If both you and your spouse donate, this could provide a significant boost. This income is taxable, so it may impact other benefits. Visit giveplasma.ca for more information. Alternatively, you can direct your compensation to a charity if you don’t need the money.
# 5. Selling Your Home
If you don’t have sufficient retirement savings but own your home debt-free, consider selling it versus renting. This decision can be difficult due to emotional ties to your home. Here are some questions to ponder:
- How much would you net from selling your home after costs?
- What is the monthly rent for a suitable property in your area?
- How long will your money last, combining all income sources and net house proceeds?
- Can you maintain the ongoing costs of keeping your home?
Selling your home to afford retirement should not be taken lightly. You need a clear action plan to prepare your home for sale, create income strategies, minimize tax, and maximize government benefits.
Action Items
1. Share this episode with someone concerned about retirement and subscribe to my weekly newsletter for updates on retirement planning.
2. Visit the My Service Canada website and create an account to manage your pension benefits, direct deposit information, and more.
3. Apply for GIS and Allowance benefits if you think you may be eligible. The government may enroll you automatically, but it’s best to apply yourself. Retroactive payments may be available for up to 11 months if you qualify.
4. Go outside and take a walk. Fresh air won’t solve your problems, but creating a plan, taking accountability, and taking action will.
That’s it for today’s episode. For links and resources discussed, check the show notes or visit retiringcanada.ca. Be sure to sign up for my weekly Retiring Canada newsletter.
And remember, when it comes to your retirement, don’t take chances.
Make a plan so YOU can retire with confidence.
All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.