Playlist : Retirement & Pension Plans In Canada (6 Topics)

Topic 1: What’s the difference between taking CPP early and late?

CPP is our Canada Pension Plan. The amount you are entitled to depends on a few factors: How long you have been paying into the pension, how much you have paid into the pension and the age at which you decide to start receiving your CPP. CPP is normally paid at age 65, however you can elect to take it as early at 60 or as late as 70. CPP payments are not automatic. You must apply.

Your age affects your pension amount:

If you start before age 65, payments will decrease by 0.6% each month (or by 7.2% per year), up to a maximum reduction of 36% if you start at age 60.

If you start after age 65, payments will increase by 0.7% each month (or by 8.4% per year), up to a maximum increase of 42% if you start at age 70.

Topic 2: The basics of old age security pension – Can I defer it?

Old age security pension amount. Who qualifies and how much can you get? The Old Age Security Pension Amount is a taxable benefit paid to individuals who are 65+ and plays an important role in the retirement of many Canadians.

The Old Age Security (OAS) pension is a monthly payment you can get if you are 65 and older. In some cases, Service Canada will be able to automatically enroll you for the OAS pension. In other cases, you will have to apply for the Old Age Security pension. Service Canada will inform you if you have been automatically enrolled.

If you decide to delay receiving the Old Age Security pension for the maximum deferral period of 60 months, your monthly amount will increase by 36% at age 70 (0.6% x 60 months).

Topic 3: The basics of RRSP, how to deduct, carry-forward of unused RRSP contribution limits and transfer your RRSP.

An RRSP is an individual retirement savings plan which has been registered with Revenue Canada. It normally permits tax deductible contributions to the RRSP and income earned in the plan is exempt from tax until payments are received from the plan.

Topic 4: What are Spousal RRSPs, how do they work and who should use them?

Contributions you make to a spousal or common-law partner RRSP reduce your RRSP deduction limit. The total amount you can deduct for contributions you make to your RRSP or your spouse's or common-law partner's RRSP cannot be more than your RRSP deduction limit. We can use Spousal RRSPs for the income-splitting strategy.

Contributions are made by a higher income spouse to a lower income spouse’s spousal RRSP.

The higher income spouse can deduct the contribution against their income, receiving a refund at their higher marginal tax rate.

Investments in the RRSP grow tax-free (tax deferral).

Withdrawals are taxed as income in the hands of your lower income spouse (tax reduction).

Topic 5: What is a RRIF and what happens to your RRSP when you turn 71?

RRIF stands for Registered Retirement Income Fund. A RRIF account is what your RRSP is converted into when you turn 71. That's because, the year you turn 71 you must convert your RRSP to a RRIF account. Unlike RRSPs, you cannot make a deposit into a RRIF account. Every year, you must withdraw the minimum payment from your RRIF account, even if you don't need the money. Those minimum payments are set by CRA.

Topic 6: Defined Benefit Pension Plan vs Defined Contribution Pension Plan

Registered Defined Benefit Pension Plan (DB Plan)

With a Defined Benefits plan, the payment amount at retirement is fixed ahead of time, according to a predetermined formula. A contributory plan (includes salary contributions) or non-contributory plan (includes only employer contributions). The employees can not to choose their investment vehicles.

Registered Defined Contribution Pension Plan (DC Plan)

In this type of plan, the employer contributes a fixed percentage based on employee’s annual earnings. Often the employees contribute a percentage of their salary, and the company matches it. The employees can direct the funds to their choice of investment vehicles. The final pension amount is unknown until retirement.