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National Bank of Canada
Financial advice often caters to wealthier Canadians. What can retirement look like for those without healthy RRSPs or other savings?
Despite their best intentions, some Canadians, facing a variety of financial challenges throughout their working lives, are not able to save much towards retirement. It can be difficult to know how to manage in these circumstances, especially when so much of the financial planning advice that gets shared widely caters to wealthier people.
Retiring with little to no savings can be challenging, but it is not impossible.
For a retiree who has worked most of their life, the Canada Pension Plan (CPP) will provide a modest retire income. The CPP retirement pension is meant to replace 25% of your historical career earnings, up to a certain limit. The CPP enhancement that started in 2019 will gradually increase that replacement rate to 33% over time.
In 2024, the maximum CPP retirement pension payment at age 65 is $1,365 per month—that is up to $16,375 per year. However, most retirees do not make enough CPP contributions during their careers to receive the maximum. In fact, the average CPP pensioner was receiving only $758 per month in October 2023—about 58% of the maximum. A CPP Statement of Contributions can be obtained from Service Canada to help estimate your future CPP pension.
CPP retirement pension payments can start as early as age 60 or as late as age 70, and the later you start your pension, the higher the benefit you will receive. There can be a lot of factors to consider related to timing your CPP pension, and payments are adjusted annually to account for increases in inflation and the cost of living.
Beyond CPP, retirees can also expect to receive an Old Age Security (OAS) pension. OAS is not based on work or contribution history, as it is a non-contributory pension. It is instead based on residency. A lifetime or long-time Canadian resident may receive up to $713 per month at age 65 as of the first quarter of 2024, which is $8,565 annualized. A 2022 change to OAS now means that pensioners aged 75 and over receive a 10% increase in their OAS pension. The maximum for a 75-year-old in the first quarter of 2024 is $785 per month, or up to $9,416 per year. This assumes they started their pension at age 65. OAS is adjusted quarterly based on inflation.
OAS can begin as early as age 65 or as late as age 70. Delaying OAS can boost payments by 0.6% per month or 7.2% per year, so that you get more monthly, but for fewer years.
A low-income retiree with little to no retirement savings should consider starting OAS at 65, especially if they are no longer working. The ideal timing of a CPP retirement pension is a little more variable, but the main reason to consider applying for OAS at 65 is a related benefit called the Guaranteed Income Supplement (GIS).
GIS is a tax-free monthly benefit paid to OAS pensioners with low incomes. Single retirees whose incomes are below $21,624 excluding OAS may receive up to $1,065 per month, or $12,786 per year, as of the first quarter of 2024. The maximum income and benefit for couples varies depending upon whether both are receiving OAS. If both spouses are receiving the full OAS pension, their maximum combined income to qualify for GIS is $28,560 excluding OAS, and the maximum monthly benefit is $641 each ($7,696 annually). If your spouse is not receiving an OAS pension, the income limit rises to $51,840 excluding OAS, and a $1,065 monthly ($12,786 annual) maximum benefit applies.
It should be noted that if a GIS recipient receives any taxable income other than OAS, they will receive less than the GIS maximums above.
The Government of Canada has an Old Age Security Benefits Estimator that can be used to determine estimated OAS and GIS benefits.
If we combine the CPP, OAS and GIS pensions, a single retiree at age 65 who is entitled to the maximum CPP and is no longer working may receive $16,375 per year at age 65. They may also receive $8,565 per year of OAS, assuming they have been long-time or lifelong Canadian residents. They would not get the maximum GIS but would still get $2,621 per year.
That’s $27,561 per year in total between CPP, OAS and GIS, or about $2,297 per month, with little to no tax payable depending on the retiree’s province or territory of residence and eligible tax credits or deductions.
There are a bunch of other factors involved with all three pensions, but the point is they can provide a solid foundation for a senior’s retirement income and should be evaluated individually by potential recipients.
Other federal and provincial benefits, often tax-free, may also be payable to retirees. The Government of Canada has a Child and Family Benefits Calculator to help to identify and estimate them. The eligibility for these benefits is generally determined by simply filing a tax return.
What if you have saved $10,000, $50,000, or $100,000 towards retirement to supplement your government pensions?
At age 65, a sustainable initial annual withdrawal from your investments might range from 3% to 4% or more, depending on your investment risk tolerance, investment fees, and life expectancy. That means a saver with $10,000 could withdraw between $25 and $33 from their savings per month, or $300 to $400 per year, and increase those withdrawals by inflation each year.
With $50,000 in savings, those withdrawals could be $125 to $167 per month, or $1,500 to $2,000 per year.
And at $100,000, withdrawals could be $250 to $333 per month, or $3,000 to $4,000 per year.
Consider these calculations as very rough guidelines with plenty of other factors to take into account. The tax implications would depend on the type of account you have saved in, but even fully taxable registered retirement savings plan (RRSP) withdrawals may be subject to little or no tax for a low-income retiree. Tax-free savings accounts (TFSAs) may be preferable saving options for savers with low taxable incomes close to retirement, as RRSP deductions are less beneficial in such cases, and withdrawals may reduce access to future government benefits.
Home equity can also be used to supplement retirement spending. Some combination of downsizing, selling and renting, borrowing using a secured line of credit, or applying for a reverse mortgage, could all top up investments or turn real estate value into cash for retirement spending. Conventional retirement planning often ignores home equity and, in a perfect world, it would not be necessary to use it to fund retirement. But in a perfect world, many Canadians would retire at 55, spend winters down south and help their children buy homes of their own. We do not live in a perfect world, and home equity may need to be a part of some retirees’ retirement plans.
Anyone approaching retirement should engage in planning on their own or with a professional to identify their retirement income sources relative to their spending. Those with little to no savings may have less access to professional advice, but this makes it even more important to learn about government pensions and benefits, and consider sources beyond savings, including home equity.
This is an editorially driven article or content package, presented with financial support from an advertiser. The advertiser has no influence on the creation of the content.
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Thank you for this! Finally someone addressed the ones who are not so fortunate and don’t make six figures! My husband, who is 5 years younger than me, became fully disabled 5 years ago. We started an RDSP soon after he was diagnosed 10 years ago and have managed to save $ despite the pittance he gets from CPP. I hope to retire at 65, eight years from now. I was beginning to think I’d have to work up to the day of my funeral.
I second Valerie K Baker’s comment. While I understand why, I was growing weary of only seeing advice written for the wealthier among us, so I was very happy to see this article. There are a lot more of us out there than one would think, where circumstances have changed unexpectedly, whether through disability, job loss, career change, marriage breakdown, relocation, illness, etc. Retirement plans are suddenly derailed, nest eggs raided, and one finds oneself starting from scratch as retirement looms. Articles like this not only help with solid information, but make one feel a bit less hopeless. Hopefully this is only the first of many.
Reverse mortgages should be used as a last resort, the interest rate charged by these non-banks is extremely high and not competitive. Better to use a secured line of credit to tap into your home’s equity, the current interest rate is about 3 to 4 percentage points lower than a reverse mortgage rate.
I’m 68, and not working anymore because of Covid 19 and I think that I can’t work anymore, because I had a Total Knee Replacement. I dont have savings and have a problem paying my credit card and Line of credit. I stopped working since January 2020 because of my surgery. Can I used my RRSP to pay my debt ? THANKS
Response from the MoneySense editorial team:
Hello Raquel, thank you for the question.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
> But in a perfect world, many Canadians would retire at 55, spend winters down south and help their children buy homes of their own.
In a perfect world, a child’s financial fortunes shouldn’t depend on whether their parents are wealthy enough to pass down lots of money. In a perfect world, parents everywhere would pool together their gifts and inheritances and split it among all children equally.
Raquel I feel for you, i started working from home and now i am part time permanent 20 hours a week on top of my regular 9-5 job. If i can’t work the 9-5 job any more i feel really lucky to have the 2nd job, its a call centre position in the privacy of my home and i feel i can work through my 70’s if i need to. Please consider it don’t give up.
This is very good advise especially to individuals with a lower income bracket and no pension plans. Not everyone can afford to save RRSP’s or have a flush savings account. The cost of everyday expenses is hard enough on an individual’s earnings.
I’m 40, make $150-$215k and have $300k in retirement savings, a $700k mortgage free home and currently owe $90k on a small $200k cottage…
Married, 3 young kids and desperately want to head into semi retirement..
I feel like I’ll never be able to afford it, I’m terrified I’ll work my life away as I’m a slave to my job
I am 58, single with an annual income of $17,600, the lowest income I have ever had since I began working 40 years ago.
I have always paid into CPP, have about $45,000 in RRSPs and own my home outright.
What am I looking at when I retire as far as CPP, OAS and GIS is concerned? Will I need to continue working until the day I die as I often joke about?
Thank you.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.
I’m still trying to retire, but, do to the high cost of living there is no way I am able to survive..
I could use some advice that is for sure. 65 with no mortgage payment or car payment only $30k of debt and $50K in savings and $130K in RRSPs .. I do have an annual income of $118K but will be laid off soon due to a restructuring. I have been collecting CPP for one year because I was not sure if I would still be working. With the restructuring my company benefits are also done.. I still want to work for a couple more years… I need to understand how can we still live comfortably..