© TIMESHOPS / STOCK.ADOBE.COM

Future proofing

How to stay financially solvent after retirement

by Lana Sanichar

A topic that keeps coming across my desk is the changing face of retirement income in Canada. What types of income should the average Canadian plan to receive in 2023 and beyond? I reached out to Julie Petrera, a senior strategist at Edward Jones Canada. This is what she told me.

The sources of retirement income are shifting. They used to rely on the “three-legged stool” to fund retirement: a government-sponsored pension plan, an employer-sponsored plan and the person’s own savings. However, retirement funding is becoming more of a responsibility for the individual as the number of employer-sponsored plans is on the decline.

A study by Age Wave, a thought leader on aging, and Edward Jones found that 55% of Canadians plan to work in retirement, some for their entire life. This means some people will continue to earn employment income. This could affect eligibility for income-tested government plans like Old Age Security (OAS), which will start to be recaptured when total income reaches $86,912. A Canada Pension Plan, on the other hand, won’t be clawed back but will go into the income test for OAS. As Canadians keep working in retirement, they may begin collecting this later, increasing the monthly benefit, thereby reducing OAS.

After age 71, one’s Registered Retirement Savings Plan (RRSP) matures, and you must either withdraw the funds, roll them into a Registered Retirement Income Fund (RRIF), purchase an annuity or use some combination of the three. Withdrawals from RRSPs and RRIFs and annuity payments are taxable and are included in the income test. High interest rates, ongoing market volatility and longevity have made annuities more attractive than RRIFs. Annuities can offer income for a guaranteed period or for life, inflation protection and liquidity.

Canadians could also receive passive income, including rental income, or withdrawals from non-registered plans or tax-free savings accounts. While neither of the latter two is included in the income test, both can be important sources of retirement funding, especially in the absence of an employer-sponsored plan.

Petrera notes that every retiree is unique and will need personal advice on how to determine what types of income to expect and how to optimize that income from a tax perspective. Speak to a financial professional to help you optimize your retirement income strategy.

---

Please do your own due diligence when making any financial decisions. This column is for general informational purposes only and may not apply to all provinces. It is meant to get the reader thinking about their finances; it is not meant to be used in lieu of advice from a professional.