Time to retire
Accumulating assets for retirement has become a must. While life expectancy has risen over the years, the retirement age has declined and the retirement period has in many cases increased from 20 to 30 years.
What will your sources of income be when you retire?
Types of income
The main sources of retirement income are:
- Public plans (QPP and OAS)
- Private pension plans
- Your personal savings and investments
Choice of age
When will you retire? If you haven’t decided yet, know that the governments have established your pension amounts according to a specific schedule.
| Québec Pension Plan (QPP) |
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| Old Age security (OAS) pension |
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Public pension plans
Public plans are one source of income. Benefits are all taxable and are generally indexed to inflation. The amounts vary according to your civil status and your family income.
Québec Pension Plan (QPP)
Participation in the plan is mandatory for all workers. In the case of salaried employees, contributions are made equally by the employee and the employer. Self-employed workers must make the full contribution themselves. Funds accumulated in the QPP are administered by the Caisse de dépôt et placement du Québec.
The amount of your pension depends on the number of years you contributed to the plan, your annual income, and the age at which you start to receive your pension.
Old Age Security (OAS)
Old Age Security benefits are paid to all Canadians according to the number of years of residence in Canada. You will be entitled to the full OAS pension if you have lived in Canada for at least 40 years after the age of 18.
Beginning at age 65, if your income exceeds a certain threshold amount, you will have to repay part or all of your OAS pension. The sum repayable is 15% of your net income in excess of the threshold amount, which is set annually and indexed quarterly.
Private pension plans
A supplemental pension plan (SPP) can take different forms. For example:
- Defined contribution plan
- Defined benefit plan
- Other plans
Pensions can be paid in different ways. For example, the sums can come from a locked-in retirement account (LIRA) or from a life income fund (LIF)
Pension income splitting
This accounting measure applies to spouses. Splitting is allowed at all times at the federal level for defined benefit pension plan income (LIF), and from age 65 for other pension income. In Quebec, income splitting is allowed from age 65. Tax credits are granted by both levels of government.
Restrictions
The following income is never eligible for splitting, regardless of the pensioner’s age:
- Old Age Security (OAS) benefits
- Guaranteed Income Supplement (GIS)
- RRSP withdrawals
- QPP benefits
- Amounts received under a retirement agreement
Income splitting may be advantageous for you. Speak about it with one of our Advisors.
Your savings and investments
Your primary or supplemental income from other sources, your savings and your investments can be converted to retirement income. The conditions vary according to the type of account used.
Registered Retirement Savings Plan (RRSP)
The sums are invested in different investment vehicles, according to your needs: fixed-income securities, mutual funds and stocks. The annual RRSP contribution limit is 18% of the income earned the previous year, up to the maximum amount established by the Canada Revenue Agency. For 2024, the maximum contribution is $31,560.
Taxable withdrawals
Amounts withdrawn from your RRSP are taxable in the year of the withdrawal and are subject to withholding tax. Your RRSP will have to transferred to a Registered Retirement Income Fund (RRIF) no later than the year in which you turn 71. It can also be used to purchase a life annuity.
Tax-Free Savings Account (TFSA)
Since 2009, the TFSA has enabled individuals to put money aside in a tax-free account. Contributions are not tax-deductible. Capital gains and income earned in the plan are not taxable, nor are withdrawals. The TFSA contribution limit in 2024 is $7,000. It will be indexed to the inflation rate and rounded off to the nearest $500.
Advantage over time
Amounts withdrawn from your TFSA and unused contribution room from the previous year are added to your contribution room for the current year. In addition, you can give money to your spouse to contribute to his or her TFSA without the attribution rules applying. Since withdrawals are not taxed, they can supplement your retirement income without affecting your federal benefits.
Your retirement income
Unlike sums held in a TFSA, investment income is taxable each year. Non-registered investments can grow your savings. The income generated will depend on the type of investment:
- interest income (GICs, bonds, etc.)
- capital gains (sale of property/stocks at a profit)
- dividend income (company)
- rental income
The tax rate will vary according to the type of income, but know that capital gains and dividend income offer substantial tax advantages.
Be informed
Complex questions?
Professionals’ Financial Advisors have clear answers and offer you a turnkey solution by giving you access to all the resources you need and by helping you make the right choices. For an in-depth analysis of your situation, place your trust in one of our Advisors.
Retirement experience
Beyond taxation, master this new stage of your life by participating in customized conferences organized each year by Professionals’ Financial. Register for our Retirement Experience Weekend, a series of dynamic workshops that deal with the realities of professionals and that focus on different aspects of retirement (psychological, social, taxation, investment, insurance, etc.).
Different stage, different strategy
For each stage of life, there’s a strategy tailored to your situation to optimize the decumulation of your assets or to maximize your investments. Take full advantage!
