Working together, each of these "pillars" will help provide the stable foundation on which your retirement income will be based.
Government sources of retirement income
Canada's public pension programs are considered among the best in the world. They are meant to provide basic retirement income to Canadians who have contributed, financially and otherwise, to the growth of this country. Service Canada is the federal agency that manages the federal retirement savings programs - the Canada Pension Plan (CPP) and Old Age Security (OAS) as well as the Guaranteed Income Supplement (GIS) and the Allowance. Several provinces also offer Provincial Income Supplements. Ontario's program is the Guaranteed Annual Income System (GAINS).
Canada Pension Plan (CPP)
The CPP provides income to individuals who have worked in Canada after the age of 18. The benefit is based on the amount of time you have contributed and the amount of contributions you and your employers have made to the CPP throughout your career. The benefit is available at the age of 65 but a reduced benefit can be collected as early as age 60 providing you have substantially stopped working.
Be sure to apply to Service Canada at least six months before you want to begin receiving your payments. The CPP provides a Statement of Contributions which, much like your Member's Annual Pension Statement, indicates the amount of contributions you have made and the amount of pension you can expect to receive. You can request your Statement from CPP up to once a year and use it to help with your retirement planning. Your CPP pension is paid monthly and is indexed to inflation.
Old Age Security (OAS)
The goal of Old Age Security is to provide a minimum income to Canadian citizens and legal residents aged 65 and older. OAS income is not dependent on your employment history and you do not have to be retired to begin collecting it. In fact, even if you have never worked in Canada, you can still receive OAS if you meet certain age and residency requirements. In general, the amount you receive is based on the length of time you have lived in Canada - the longer your residency, the larger the benefit. If your income after age 65 is above a certain amount, you may be required to repay some or all of the benefit you received.
You must apply for your OAS pension at least six months before you want to begin receiving it. If you apply after the age of 65, you may only be able to collect up to 11 months of back payments so it's important to apply as soon as possible. Your OAS benefit is paid monthly and is indexed to inflation.
Guaranteed Income Supplement (GIS)
The GIS benefit provides income for individuals over the age of 65 who are receiving OAS and who have little or no income from other sources. This supplement is normally not relevant to retired members receiving income from the Plan.
The amount of the benefit is based on both your income and that of your spouse. You must apply for the GIS benefit in order to receive it and you must renew it each year.
Your GIS benefit is added to your monthly OAS payment and is indexed. If your annual income increases above a certain amount, or you do not renew your benefit, your GIS payment will stop.
The Allowance and the Survivor Allowance
The Allowance acknowledges the circumstances facing couples who rely on one pension when the working spouse retires. To receive the Allowance, you must be between the ages of 60 to 64, married or in a common-law relationship and your spouse must be eligible to collect both the OAS and GIS benefits. You must also be a Canadian citizen or legal resident and meet certain residency requirements. The amount of your benefit is based on the combined income of you and your spouse. To receive the Allowance you must apply for it and it must be renewed each year.
The Survivor Allowance is provided to a senior who meets the requirements for the Allowance but whose spouse has died. The benefit is based on the income of the surviving spouse. If you are in receipt of the Survivor Allowance and subsequently enter into a marriage or common-law relationship, you are no longer eligible to receive the benefit. When you turn 65, both the Allowance and the Survivor Allowance stop and are normally replaced by the OAS benefit.
Government Annual Income System (GAINS)
The GAINS benefit is administered by the Ontario Ministry of Finance and is similar to programs available in some of the other provinces. This program provides a minimum income to Ontario seniors over the age of 65 whose income falls below a certain level.
There are residency requirements that must be met and the individuals must be in receipt of OAS and GIS benefits from the federal government. This supplement is normally not relevant to pensioners receiving income from the CAAT Plan.
You do not need to apply for this benefit - eligibility is determined each year based on your income tax return. For information on this program, visit the Ministry of Finance's website.
Spending time outside of Canada
Canada has entered into social security agreements with several countries, which may make it easier for you to collect government benefits. If you don't meet the CPP contribution or the OAS residency requirements here in Canada, time spent living and working in other countries may allow you to qualify. For example, if after the age of 18 you lived in the United States, you can count this period as residency in Canada. Any contributions to the US pension program will also count as contributions for the purposes of the CPP, thereby allowing you to qualify for Canadian benefits.
Many of the agreements work both ways. If you lived and worked in other countries but do not meet their eligibility requirements, periods of contributing to the CPP may be applied to their plans. Service Canada's website contains numerous fact sheets on the agreements Canada has with other countries including the United States, Germany, Ireland and Barbados.
Once you have qualified to receive your CPP and OAS benefits, you can collect them outside of Canada. You may however, lose your entitlement if you move outside of Canada for six months or more. If you are planning to leave the country, be sure to consult with Service Canada for information.
It’s important to remember that your government benefits, like CPP and OAS, are paid in the last 3 business days of each month. Your CAAT Plan pension is paid on the first business day of each month. This means your retirement income payments will be staggered during the month. Remember that your CAAT Plan pension and your government pensions, (CPP and OAS) are all taxable.
Tailoring your retirement - RRSPs and personal savings
Your personal savings are the third component of your total retirement income. As a Plan Member, you can expect to receive your CAAT Plan pension as well as your government benefits when you retire. It's important, however, not to overlook the role your RRSPs and other savings vehicles will play in your total retirement income plan.
Your personal retirement savings plan can be seen as a two-step process. The first step is building up your personal savings - the investment decisions you make will ultimately determine how much income you will have when you retire. The second step involves paying yourself out of the funds you have accumulated.
Building your personal savings: RRSPs and Income Tax
Registered Retirement Savings Plans (RRSPs) provide you with the opportunity to grow your savings tax-free for retirement. Each year, you can claim an income tax deduction for the entire amount you have contributed to your RRSP, up to your limit. The interest you earn in your RRSP is also tax-sheltered - you only pay taxes on the amount that you withdraw. Therefore, not only can you save on your taxes in the years you contribute, and shelter investment growth within your RRSP, but you may also be taxed at a lower rate when you withdraw the funds after you stop working.
Depending on the source of your funds, the RRSP you open can be locked-in or not locked-in. If you transfer funds to an RRSP from a registered pension plan or other locked-in savings plan, that locked-in RRSP (also known as Locked-in retirement account or LIRA) can only be used as retirement income. On the other hand, if you open an RRSP account at a bank or financial institution using cash, savings bonds or other liquid assets, this RRSP is not locked-in and funds can be withdrawn and used before retirement if needed. The amount taken out, however is considered taxable income in the year it's withdrawn, unless it is used to purchase a home (under the Home Buyer's Plan), or to pay for your education (under the Lifelong Learning Plan). Information on these programs can be found on the Canada Revenue Agency's website.
Paying yourself: Some RRSP income options
Once you retire, the emphasis shifts from funding your RRSP to managing the retirement income you have accumulated along with your government and CAAT Plan pensions. CAAT Plan and government pensions will provide a steady stream of income for the rest of your life. However when it comes to your RRSP, you must decide how to manage your assets to ensure you will have enough to see you through your retirement needs.
You must stop contributing to your RRSP by the end of the year you turn 71. At that time, funds withdrawn from a non locked-in RRSP can be taken as cash (subject to income tax), used to buy an annuity, or transferred to a Registered Retirement Income Fund. However funds that were transferred out of a registered pension plan into a locked-in RRSP can only be used for retirement income in the form of an annuity, or a transfer to another locked-in vehicle.
Some options are outlined below:
Registered Retirement Income Fund (RRIF)
RRIFs are similar to RRSPs, with the exception that you must withdraw funds from your RRIF on a regular basis. They are used to accept transfers of funds from non locked-in RRSPs and other investment vehicles. You must establish your RRIF by the end of the year in which you turn 71 and you must make a minimum withdrawal to use as retirement income each year. This withdrawal will be taxed at the appropriate rate. RRIFs are flexible in that you can control your investment, and, as with RRSPs, your earnings and interest accumulate tax-free.
Life Income Fund (LIF)
LIFs are similar to RRIFs but with additional restrictions. LIFs only accept transfers of locked-in funds from registered pension plans and locked-in RRSPs. As with RRIFs, there are minimum withdrawal limits, however LIFs also impose maximum limits.
Locked-in Retirement Income Fund (LRIF)
As with LIFs, LRIFs also accept the transfer of locked-in funds from registered pension plans and allow you to invest and grow your savings tax-free. LRIFs also impose minimums and maximums on the amount that you must withdraw yearly. However, LRIFs are meant to provide you with retirement income for life - there is no requirement to purchase an annuity at a specific age.
Depending on your needs, you can use your personal savings to purchase an annuity. An annuity provides you with guaranteed income either for a specific period of time or for your lifetime. The financial institution, life insurance or trust company that issues your annuity is responsible for your investments and for paying you a stream of income for your retirement. How much you receive depends on the size of annuity you purchase and actuarial factors such as your age, gender and life expectancy. Some annuities offer, at an extra cost, a joint and survivor option that will continue to pay your spouse when you die.
The above list provides a general idea of the options available to you, however it is not meant to be exhaustive. How you manage your retirement income will depend on your individual circumstances. As with all financial decisions, it's a good idea to research the available options and consult an independent investment advisor or financial planner for advice.
Working in retirement
Today's seniors are spending more time in retirement than previous generations. This can be attributed to a number of factors. First, the average retirement age has decreased from the late 1970s to around age 61 recently. Second, life expectancy for the average Canadian has been increasing due, in part, to advances in the medical field. It's now likely that a person can spend the same amount of time in retirement as in the workforce.
Returning to work
Going back to work after retiring is an individual decision. For some, returning to work makes economic sense - income from employment may be a necessity for any number of reasons. Many pensioners report feeling "cut off" from what had been a significant portion of their life and return to work in order to ease the transition into retirement. On the other hand, some retirees return to work simply because they enjoy it. Retirement may give them the chance to follow a new career path or work independently. Retirement allows them more time to pursue hobbies and interests, some of which can turn into income-generating enterprises.
Working and your CAAT Plan pension
After you retire, you may decide to return to work in the College system, for a new organization, or even for yourself. If you do become employed outside of the College system, you can continue to collect your CAAT Plan pension as well as your income from employment. Once you've started your pension, however, you no longer have the option to transfer your CAAT Plan service to another organization's pension plan.
If you do return to the College system, you have options that are based on your age and your employment status.
- If you return to full-time employment at a College after starting your early retirement but before turning 65, you will re-enroll in the CAAT Plan. Your CAAT Plan pension will stop and you will resume contributing to Plan for as long as you are employed (and no later than age 71).
- If you return to part-time employment at a College after starting your early retirement but before turning 65, you decide whether or not to rejoin the Plan. You can become a member as above, or you can continue to collect your CAAT Plan pension along with your employment income.
- If you are between the ages of 65 and 71 and you return to work at a College either on a full-time or part-time basis, you have the choice to resume your membership in the Plan or to continue collecting your CAAT Plan pension along with your employment income.
- By law, when you reach the age of 71, you must stop contributing to the pension plan and begin collecting your pension. This applies if you are still employed at age 71 or if you return to work after that time.
When the time comes for you to restart your retirement, your pension calculation will be based on your service and earnings for all of your periods of employment, less an adjustment for the pension payments you have already received.
Possible implications of returning to work
Planning for post-retirement employment involves determining the possible impact on your other sources of retirement income. Employment earnings may have an effect on the retirement benefits you are eligible to receive from the government. For example, your retirement income may consist of your CAAT Plan pension and your Canada Pension Plan (CPP) benefits as well as your employment earnings. When you become eligible to collect your Old Age Security (OAS) benefit at age 65, your overall income may surpass the OAS threshold. If that is the case, your OAS benefit may be subject to a "clawback" and you could be obliged to repay some or all of your OAS.
In addition, your employment earnings may affect the amount of income tax you are required to pay each year. Depending on your situation, you may wish to adjust the amount of tax deducted from your paycheques or your pension income by completing and submitting Personal Tax Credits Return forms (available from the Canada Revenue Agency).
Overall, the impact of returning to work after retirement can be beneficial to your finances and personally fulfilling. The sense of contributing that comes from working is known to have a positive impact on individuals of all ages. In addition, the skills and experience that older workers bring to the workforce are invaluable. Even if working in retirement is not an option, volunteering and mentoring may be right for you. In either case, you may find it worthwhile to consider post-retirement employment as part of your overall retirement plan.