Sources of income in retirement

The Ritcey Report

February 9, 2017

This is the first of a three-part commentary about an issue central to the financial well being of our friends in Nova Scotia approaching retirement age.

Apart from private money squirrelled away in a Registered Retirement Savings Plan (RRSP) or other savings vehicles, Old Age Security (OAS), the Canada Pension Plan (CPP) and Guaranteed Income Supplement (GIS) are key components in the retirement planning of Canadians. But many people confuse the three programs. They are uncertain about how they work, how much they pay out, and when to apply for them.

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 should I apply?

A person should apply for OAS six months before they turn 65.

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 pay cheques. 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 a 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 anytime after age 60, although they incur a financial penalty by doing so.

As of 2013, a person receiving CPP early will be subject to a 0.54 per cent reduction for each month before the age of 65 that they received payments. That number is targeted to rise to 0.6 per cent each month in 2016.
On the other hand, if a person chooses to delay CPP payments they receive a similar increase for each month they wait between the age of 65 and 70. In 2013, that increase worked out to 0.70 per cent per month.

What is GIS?

The Guaranteed Income Supplement 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. For example, for October to December 2016, the maximum benefit for a single person was $773.60 per month and is not considered taxable income. This would be based on net income of less than approximately $17,304. GIS must be applied for annually.

In offering this overview of how the OAS, CPP and GIS differ, it is important to note that each program contains important nuances and qualifications needing discussion with a knowledgeable professional.

For further information and advice, please contact Dave Ritcey, Portfolio Manager at The Ritcey Team of ScotiaMcLeod®, a division of Scotia Capital Inc. , Tel.: 902.678.0048