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Introduction to Retirement Income Planning – Part 3

Introduction to Retirement Income Planning – Part 3

This is the third of a five-part commentary about an issue central to your financial wellbeing as you approach retirement age. It is an analysis of the sources of income necessary to support your retirement objectives.

Before continuing, we suggest you read part 1 and part 2 of this series.

In our earlier articles, we promised to provide you with an overview of your various pension plan options as you approach that critical transition into retirement.

So far, we have described two company sponsored pension plans – a defined benefit pension plan and a defined contribution pension plan – and explained their distinctions and differences.

Now, we will discuss three Canadian government sponsored retirement plans: the Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income supplement (GIS).

What is CPP?

The Canada Pension Plan is a form of retirement income that is open to all Canadians who have worked and paid into the system through deductions from their paycheques. The amount a person receives under the system depends on how much and for how long a person contributed, together with the age at which that person started receiving CPP payments.

Who is Eligible?

Anyone who has made at least one payment into CPP is eligible for benefits once they reach the age of 65. The size of the benefits depends on how much, and for how long, a person contributed into the plan and at what age they start receiving benefits.

When Should I Apply?

This is really up to the individual and whether they want to receive a smaller or larger CPP benefit. However, the government recommends applying six months before a person wants their pension to begin. A person can begin receiving CPP any time after age 60, although they will incur a financial penalty by doing so.

What is OAS?

OAS is a monthly payment available to Canadians age 65 and older who meet certain requirements. Unlike CPP, it is not dependent on a person's employment history and a person does not need to be retired from a job to qualify for it.

Who is Eligible?

OAS is available to Canadian citizens and legal residents living in the country who have spent at least 10 years in Canada after they turned 18. It is also open to people outside of the country that were Canadian citizens or legal residents on the day they left the country, as long as they spent at least 20 years of their adult life in Canada.

When Can I Apply?

A person can apply the month after they turn 64 years old. If you wish to start receiving your OAS pension at age 65, you should apply for your OAS pension right away. A person does have the option to defer payments until age 70. However, there are many scenarios that affect OAS payments and they should be discussed with a financial planner before making a decision.

What is GIS?

The Guaranteed Income Supplement is directed at low-income recipients. To be eligible for GIS, an applicant must be eligible to receive OAS benefits and not exceed specified income maximums. Income will include items such as private and government pensions, RRSP payments, employment income and investment income, but will not include OAS benefits.

In offering this overview of how CPP, OAS and GIS differ, it is important to note that each program contains important nuances and qualifications needing discussion with a knowledgeable professional. If you do not have a financial advisor, one of our partner credit unions (Coastal Community Credit Union, Interior Savings Credit Union, or FirstOntario Credit Union) would be happy to help.

Healthy, wealthy and wise is an expression with which we are all familiar. Retirement income planning is a fundamental building block of that crucial challenge as you prepare for one of the most critical of all life’s transitions. Getting informed, professional advice is both sensible and necessary.


Part 4