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Can you simplify RRSP, OAS, and Pension rules please?
February 5, 2021
7:10 am
James
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Bill, I'm afraid you've missed the point entirely. The OP wasn't putting almost zero into the plan. In fact, OP mentions working in Quebec and intention to work unless stopping due to illness, etc. or reaching savings goal. OP wanted help planning for retirement which is the reason for asking the question.

It's great that you're healthy enough to work, and don't have anything getting in the way of you contributing the maximum on a regular basis, but that's just not realistic for a lot of people.

Bill said
Re pension splitting I find it easiest just to use T1032 form every year to split pension income as needed at tax time. But I suppose that provision could be amended at some point.

James, you're right, I could have been more helpful when someone wonders what their minimum guaranteed lifetime pension entitlement is (presumably funded by other taxpayers) after putting in almost zero to a plan, guess we "take issue" with different things. Good thing Norman1's a nice guy!

Those statements from CPP were never clear to me re one thing.
It indicated what my pension would be but I was never clear if that number was a minimum guarantee or if it would go down if my employment pattern changed, i.e. was it calculated only on the assumption I would continue my contribution pattern until age 65? And was it indexed if I stopped working? It didn't seem to be clear about that but I didn't care enough to follow up, my intention was to keep working and contributing to the max.  

February 5, 2021
7:30 am
Bill
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Good point, Loonie, T1032 pension splitting is not available for CPP (or OAS), so CPP sharing would be the only way to split for a lower-income couple where neither has much/any RRIF and/or employment pension income eligible for splitting via T1032. The CPP sharing I believe is set at 50/50 of the CPP earned during the spousal the relationship, so another difference from pension income splitting which allows any percentage up to 50%, if I recall.

February 5, 2021
7:56 am
Bill
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James, c'mon, you know that in your post #21 you took issue with my post #19 which was a response not to OP but to you, your post #16, wherein you mention nothing about working long, you just wonder how much minimum pension is available for someone who contributes almost zero.

February 5, 2021
8:01 am
topgun
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I checked on CPP early payment penalty. The changes started in 2012. It was phased in over 5 years from 2012 to 2016. The penalty was increased from .5% per month to .6% per month for every month taken before age 65.

Have a Great Day

February 5, 2021
9:07 am
Alexandre
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Looks like nobody in this conversation, other than myself, consider GIS or is eligible for GIS.

Good news for Canadian government. sf-wink

February 5, 2021
11:11 am
topgun
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Alexandre said
Looks like nobody in this conversation, other than myself, consider GIS or is eligible for GIS.

Good news for Canadian government. sf-wink  

I qualified for GIS for one year. The following year I took money out of my RRSP so I no longer qualify.

Have a Great Day

February 5, 2021
3:51 pm
James
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Bill, I clearly say several times in my posts that it's a curiosity about the minimum. You've made some assumptions and I'm challenging the validity of those. If you don't have the calculations, you can't reliably determine your retirement income. I have worked and contributed the maximum for many years, if that makes you feel better but that's really not the point of all of this.

Bill said
James, c'mon, you know that in your post #21 you took issue with my post #19 which was a response not to OP but to you, your post #16, wherein you mention nothing about working long, you just wonder how much minimum pension is available for someone who contributes almost zero.  

February 5, 2021
8:27 pm
Loonie
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Bill said
Good point, Loonie, T1032 pension splitting is not available for CPP (or OAS), so CPP sharing would be the only way to split for a lower-income couple where neither has much/any RRIF and/or employment pension income eligible for splitting via T1032. The CPP sharing I believe is set at 50/50 of the CPP earned during the spousal the relationship, so another difference from pension income splitting which allows any percentage up to 50%, if I recall.  

CPP pension sharing is not necessarily for low income without RIFs etc. In fact, it may not be suitable for them at all if their incomes are similarly low.

It's useful for situations where there is income disparity, both from CPP and overall, between the two partners which can be assumed to continue for the foreseeable future. It really depends on who has which sources of income and how much each has in relation to the other. It is more useful if one took CPP early and the other delayed to 70. It also matters how close to the line they are in terms of tax brackets and OAS clawbacks, similar to pension splitting.
The actual amount of their total income as a couple is irrelevant.

Pension sharing is not 50:50 at all. No specific ratio is accurate because it's a complicated calculation.
The major factors are:
1. The pension that is shared can only be the portion that represents earnings after the marriage or common law began. Most people do not marry at 18, so it's reduced accordingly. If common law for any portion, must provide some kind of written documentation of month and year, which can be difficult for many as it may have been a long time ago, so that cuts some people out of some years.
2. It's not structured as a split. That's why they call it sharing. Each annuitant donates to the other a specified (consistent - I think it's 40%, not sure) percentage of their applicable CPP income. Both must do this. Whatever that works out to is added to the remaining portion that they did not share. The end result is that they do not get equal amounts, but they are closer to equal than they were before.
3. Once you both sign up for this, CPP works it all out and you get whatever it works out to, no further adjustments except CPI. Contrary to what is said on several websites, there is a form you can submit if you wish to end this arrangement, but it has to be approved.
4 If this is not sufficient to create the incomes they are aiming for, they can split RIFs or company pensions on an annual discretionary basis.

CPP pension sharing is only going to be useful for some people, probably a minority. The calculation is difficult, and you may be guessing when you decide whether to apply. I had time to think about it for several years because we retired at different times, but it has been worthwhile for us. I estimate it saves us about $250 in taxes annually with a CPP income ratio of 45:55 . it adds up.

February 6, 2021
5:48 am
Alexandre
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topgun said

I qualified for GIS for one year. The following year I took money out of my RRSP so I no longer qualify.  

This is exactly the point: if someone like OP plans to keep taking from RRSP/RRIF after hitting 65, they may be missing $1,000+ monthly payments through GIS.

Taking from RRSP/RRIF when collecting GIS is equivalent to almost 50% income tax, as for every dollar of income (RRSP withdrawal included) GIS is reduced by about 50 cents.
After small base income amount of a few thousand dollars annually.

February 6, 2021
7:30 am
savemoresaveoften
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Alexandre said

This is exactly the point: if someone like OP plans to keep taking from RRSP/RRIF after hitting 65, they may be missing $1,000+ monthly payments through GIS.

Taking from RRSP/RRIF when collecting GIS is equivalent to almost 50% income tax, as for every dollar of income (RRSP withdrawal included) GIS is reduced by about 50 cents.
After small base income amount of a few thousand dollars annually.  

I surely hope those receive and qualify for GIS is because they need it. Its a income supplement, meant for those who can not fund their retirement otherwise. In other words, one should not plan their retirement income / time to quit work just so they can qualify for GIS ....

February 6, 2021
8:59 am
Alexandre
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savemoresaveoften said
one should not plan their retirement income / time to quit work just so they can qualify for GIS ....  

Taking OP as an example, he says "I am planning to stop working full time when I am 55 ... after 65 it will be pension in addition to my savings and RRSP."

For his case specifically, depending on how large his RRSP holdings are and where he plans to live after 65, it may be wise to liquidate all RRSP holdings during unemployment years of 55 to 65, instead of after 65.

Suppose, he will have $400K in RRSP by the time he is 55. Taking $40K out of RRSP Savings for 10 years before 65 vs. after 65 could make up to $150,000 difference in his post retirement income.

What financial adviser would recommend to dismiss outright an ability to legally earn $150,000 while on retirement? What sort of retirement planning is this?

February 6, 2021
9:33 am
Norman1
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savemoresaveoften said

I surely hope those receive and qualify for GIS is because they need it. Its a income supplement, meant for those who can not fund their retirement otherwise. In other words, one should not plan their retirement income / time to quit work just so they can qualify for GIS ....

The 50% GIS clawback and the resulting income thresholds are not that desirable.

According to Guaranteed Income Supplement: How much you could receive, GIS is currently

  • $919.12/month ($11,029.44/year) for a single person or
  • $553.28/month ($6,639.36/year) for each person when spouse also qualifies.

With the 50% GIS clawback, there isn't going to be much GIS left unless (excluding OAS and GIS)

  • the single person's income is significantly less than $18,648/year or
  • the couple's combined income is significantly less than $24,624/year, when they both qualify, or $44,688/year, when only one qualifies.
February 6, 2021
12:05 pm
Bill
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Doesn't make much sense to me to plan your working life, etc around maximizing your take from the other taxpayers, especially as who knows what the forms of support, the thresholds, etc will be decades from now? Especially in a time when everybody mouths the mantra that real change is needed, that "the system" is fundamentally inequitable, etc. The mishmash of various levels of gov't entitlements will undoubtedly be very different, a guaranteed income might change everything up, and so on and on.

February 6, 2021
4:48 pm
Save2Retire@55
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savemoresaveoften said

I surely hope those receive and qualify for GIS is because they need it. Its a income supplement, meant for those who can not fund their retirement otherwise. In other words, one should not plan their retirement income / time to quit work just so they can qualify for GIS ....  

I am repeating the reply above: What financial adviser would recommend to dismiss outright an ability to legally earn $150,000 while on retirement? What sort of retirement planning is this?

I will take any money I can legally. Even if I don't need it, I will find those who do.

February 7, 2021
4:40 am
savemoresaveoften
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Save2Retire@55 said

I am repeating the reply above: What financial adviser would recommend to dismiss outright an ability to legally earn $150,000 while on retirement? What sort of retirement planning is this?

I will take any money I can legally. Even if I don't need it, I will find those who do.  

My point is one should not plan their retirement plan in such a way to maximize welfare from government. It has nothing to do with legality.

CPP is something one contribute to, so fully entitled.
OAS is to look after the senior, so fully entitled.
GIS is to help those in need, thus a welfare system similar to food bank.

I certainly hope one does not plan it in such a way so they can access the food bank, same with GIS.

Someone that qualifies and requires GIS to bridge the gap should not even have an advisor to begin with. Their net worth is just too small to make the advisor fee worthwhile...

February 7, 2021
5:54 am
Alexandre
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savemoresaveoften said
Someone that qualifies and requires GIS to bridge the gap should not even have an advisor to begin with. Their net worth is just too small to make the advisor fee worthwhile...  

A Canadian couple in retirement could have $100,000 in savings, own a house and a car, yet might still qualify for GIS, after receiving OAS.

With OAS+GIS they could live modest but decent life, without need to visit food banks.

I am not judging, but if government provides, this couple should plan their finances correspondingly, before retirement age. For them it could make a difference in their finances if out of their $100,000 they keep most of it in RRSP Savings by the time they hit 65, instead of regular Savings account.

I am also not saying they could afford to employ a financial advisor, but someone who is fit for that role and volunteers to help others should be able to give proper financial advise to these folks. Even if for free.

February 7, 2021
1:40 pm
Alexandre
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Here is real life example: I know a couple who are retirees, living in Ontario outside of high priced real estate areas, both are seniors. I helped them with filing taxes and did for them basic financial planning, so I am aware of their financial situation.

Husband worked before retirement, in non-unionized jobs on modest salary, but enough to provide for household.
Wife didn't work. She was stay-at-home mom, later in life she focused on volunteering for good causes in their community.

Their combined post retirement income from CPP + OAS + GIS + GST rebate + Ontario provincial social assistance payments: $2,600 a month.

They own small mortgage free house with tiny but nice back yard/garden, and a car they bought new 10 years ago. They don't drive it much, it is parked in a garage, so they expect it should last for another 10 years at least.

They spend $1,200 per month on all regular household expenses: property taxes, utilities, car and house insurance, TV/Internet, clothing, medicine not covered by OHIP, etc. Everything but groceries.
They spend $900 monthly on groceries. At $450/person, even with rising grocery prices, they obviously don't live on canned beans. They have no need for food bank either.

Every month they are able to put aside $500 for emergencies and household repairs, and also have about $120,000 in savings. They live modest but decent life, two seniors 85 years old.

They didn't necessarily plan it that way, to rely on government assistance. They also didn't make any bad choices in life, obviously.

The monetary difference between husband's meager CPP and what they actually receive from the government makes an enormous difference in their life.

I think some people from those who are above that level of income tend to ignore safety net that exists in Canada for seniors - and dismiss it too easily.

February 7, 2021
2:48 pm
Loonie
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When people work for modest wages all their lives and find that CPP and OAS and whatever they've managed to save are not adequate for a decent life in retirement, it is other Canadians who supplement their income with GIS etc.

It would make more sense to ensure they had a better wage in the first place, so that they could save more, have RSPs and/or TFSAs, so they wouldn't be dependent on the rest of us later.

But the same people who dislike their taxes being spent on GIS also tend to dislike raising the minimum wage to a more livable rate. They say it's "bad for business", but some of those businesses are not really viable. The rest of us are supplementing them by supplementing their retired employees.

I live in Toronto. There are lots of jobs here that we apparently want someone to do that don't even pay enough for people to have anything like a decent life, nevermind buy any kind of house or car or save for retirement, so we end up paying for their old age.

February 7, 2021
5:11 pm
Bill
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Alexandre, I agree, I'm pretty sure no-one begrudges assistance given to the couple in your example, their history suggests they are contributors, not takers, and that they have not lived in a way that is a deliberate plan to maximize their take from the rest of us in their later years. And I agree, if they have a bit of RRSP money put away it makes sense to use that money up before age 65 if it's only going to cost them in forgone benefits.

February 8, 2021
5:18 am
Bill
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Loonie, higher minimum wages have more than a single (i.e. good for the locally employed) effect. Such anti-business attitudes and policies have a range of negative consequences too; just one example being that multinationals instead decide to locate where they're welcomed and thus (some recently obvious examples) we have little or no domestic vaccine production facilities, no domestic ppe production facilities, etc. Same people who are anti-business tend to be upset later at the consequences, seems to me.

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