I think it’s safe to say that every single Manitoban with retirement on their minds is asking the question, “how do I get more income in retirement?” It’s perfectly logical to try and optimize your financial position, squeezing the most money you can out of your assets. While every person’s financial situation is unique, here are a few general tips that may likely lead to more money in your pocket:
Delay your CPP as long as you can. Canada Pension Plan (CPP) is one of the cornerstones of most Canadian’s retirement plans. What many people don’t understand is that you can choose when you start receiving those payments. CPP can be started anytime between your 60th birthday and your 70th birthday, with “normal retirement age” being 65. For each month prior to your 65th birthday, you’ll have your benefit reduced by 0.6% (to a maximum of 36%). For each month after your 65th birthday, you’ll have your benefit enhanced by 0.7% (to a maximum of 42%).
How does this look in real life? If you’re expecting a $1,000/month CPP payment should you start at 65, you’d receive $640/month if you start at 60 or $1,420/month by waiting to 70. According to Stats Canada, the average 60-year-old is expected to live for another 22.8 years. The pensioner who started at 60? They’ll get $175,872 in that timeframe. The pensioner who started at 65? They’ll get $214,800 in that span. And the pensioner who started at 70? They’ll receive $219,816! Moral of the story, if you have an average life expectancy, it pays to wait on your CPP.
Avoid the OAS “clawback”. One of the biggest detractors from retirement income is the Old Age Security (OAS) clawback threshold. In 2021, that line in the sand is $79,845 of taxable income. For every dollar you earn over that figure, you’ll have $0.15 of your OAS reclaimed. That’s a 15% bonus tax on your income! How do you avoid that threshold? The simplest solution is to be as tax smart with your money as you can. Consider splitting pension income with a spouse, deferring income where possible, or drawing from low-to-no tax resources rather than fully taxable assets. If you are careful with your income management, you can avoid losing out on your well-deserved benefits!
Prioritize flexibility. There’s a lot of value to being flexible with your money and it’s no different in retirement. It’s important you weigh the costs of guarantees against your need for retirement income. Many financial products (pensions, annuities, GICs, certain investments, etc.) promise guarantees in exchange for higher fees or reduced access to your money. If these options become too restrictive, you may find the only guarantee you have is the guarantee that you’re not getting enough income for your retirement! Be sure to read the fine print and consult with an unbiased financial expert before committing your hard-earned money to a restrictive financial product.
There are many strategies to boosting your income in retirement beyond these three. The biggest piece of advice I can give is to start planning for them sooner rather than later. Rushed decisions often lead to less-than-desirable outcomes. Preparing months or even years before you retire will ensure you’re ready to get the most out of your money!
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