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February 21, 2017

Ins and Outs of Retirement

Reuel S. Amdur

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The retirement income system "is complex, with lots of moving parts that intersect with each other and with the tax system." These words, of Bob Baldwin, former Director, Social Economic Policy for the Canadian Labour Congress and member and chairman of the Canada Pension Plan Advisory Board, were echoed in presentations at an Ottawa Council on Aging luncheon session on November 23. He and Richard Shillington, an author, statistician, and researcher who has produced reports for the C.D. Howe and Broadbent institutes, attempted to unpack some of the complexities.

If you are closing in on age 65, there are some do’s and don’ts.  To begin, apply several months ahead for Old Age Security and Canada Pension Plan or the Régie des rentes du Québec.  You can apply for CPP or the Régie as early as age 60, at a lower rate of benefits.  You may also delay applying for these, but not for the Old Age Pension, till age 70, with a higher rate of benefits.  Opting for the earlier application gives the option of investing in a way that might be more financially advantageous, for example in a Tax- Free Savings Account. 

Someone receiving social assistance should not sign up for an early CPP or Régie because payments will be deducted from social assistance, dollar for dollar. 

Another don’t: If you are on low income and likely to be eligible for the Guaranteed Income Supplement (GIS) for low-income seniors, do not go onto OAS holding a Registered Retirement Savings Plan (RRSP).   Money taken out of an RRSP, before or at the time of collapsing the plan at age 70, will affect the GIS entitlement.  A Tax-Free Savings Account is a good alternative.  If you are working between age 65 and 71, buy an RRSP if you need to reduce taxable income in order to be eligible for the GIS.  This involves some tricky calculations.

Facing the complicated nature of the system, there should be someplace that people, especially those on low income, can go to get advice on relevant planning.  Shillington warns low income people not to go to a bank for help on retirement planning.  He says that they are not equipped to give suitable advice for those on low income and are apt to put people in RRSP’s, when it is not in their interests.  While Shillington offered his personal e-mail for those wanting advice, that offer is hardly a solution in general.  The speakers had no answer as to where people might go.  Perhaps social assistance agencies could fill the gap, or agencies such as the Council on Aging. 

So, what can a senior do if he has an RRSP which interferes with eligibility for a full GIS?  There is a possibility—and it is only a possibility—that you can get Services Canada to permit you an Option Year.  In such a year, you can then try to get rid of your RRSP.

In addition to OAS, there is also a Widows and Spouses Allowance for those from 60 through 64.  Widows must have been legally married to the deceased in order to be eligible.

Some provinces, including Ontario, have an additional amount for low-income seniors.  In Ontario, it is called the Guaranteed Annual Income Supplement (GAINS).

A problem occurs for new Canadians who have not been in the country long enough to receive the full OAS—40 years.  They must be here ten years to receive any OAS at all.  Provinces may pick up the slack.  Thus, in Ontario a person who lacks full OAS coverage may be eligible to receive benefits from the Ontario Disability Support Program if they meet other ODSP criteria.  Interestingly, Shillington and Baldwin were not aware of this. 

Baldwin spoke of the performance of our retirement system in lessening poverty and in replacement of earnings.  He noted that poverty among seniors declined significantly from the 1970’s to the mid 1990’s but has since increased.  And how about earnings replacement?  Middle income earners without pensions were hit hardest.  Future prospects are not that great, considering the decline in jobs with retirement benefits and with the trend away from defined benefits pension plans and toward those with defined contribution plans.

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