Government Benefits will that be your Retirement Income?

In many cases Government Benefits may be the main part of your retirement Income, part of this income will consist of:

American Baby Boomers ==> Click here
Canada Pension Plan-CPP-- if you have contributed to it. If you work under-the-table for cash to evade Income Tax and GST, you are not contributing to the CPP and YOU will not receive it!

CPP is indexed to inflation, meaning as inflation increases so does your monthly payment.

CPP benefits are NOT automatic, you must apply to receive them.

Should you take your CPP benefits early?


Old Age Security--OAS. if you have lived in Canada long enough.
Is a government benefit for anyone who has lived in Canada for the minimum number of years. OAS is available at age 65 and is indexed to inflation.

Again OAS is NOT automatic It must be applied for.

Both CPP and OAS are fully taxable at your marginal tax rate. If all you have at retirement is CPP and OAS your taxes will be minimal.

Guaranteed Income Supplement--GIS. If you qualify.
The GIS was brought in as a nontaxable benefit for those who had no or very little CPP. It too is indexed to inflation and must be applied for.

Disability Tax Credit If you qualify.
For people with disabilities, physical, mental or both. This tax credit is hugely important.

Case Study - Disability Tax Credit

It is estimated that several million Canadians entitled to some or all of these government benefits and do not receive them, because they have never applied for them.

Other Income

You need to know about your company pension.

Is it linked to CPP? Does it have a bridge benefit? Can you take it early without losing a portion? Is it a “defined benefit,” “defined contribution” pension, or “deferred profit sharing?”

These are all issues you need to be aware of as you move toward Retirement.

New governemnt Regulation -- Pension Income Splitting

This is anything you have managed to save for Retirement Income with:
RRSPs.
In the year you turn 71 you must convert your RRSP to cash, a RRIF, or to an Annuity.

Open Investments - non registered accounts.

A Leverage Program - you borrowed the money to invest and wrote off the interest and earned tax efficient growth.

The Insured Retirement strategy -which gives you a tax free retirement income and that gives you more to spend.

Top of Page

A Fine State of Affairs

Government benefits are not designed to supply all your retirement income. They are there at a subsistence level, so you don’t starve!

Government benefits should account for between 20% to 30% of your retirement income, not 100%.

Will you face onerous taxation and claw backs on your government benefits and reduced retirement income, by doing what you are currently doing?

Steps to Take

Levels of taxation differ with your level of income, knowing your marginal tax rate is a huge help in determining the best strategy for you.

Figure out your after tax income, because that’s the income that counts. It’s what you will have to spend.

A simple way to do this. Add up you and your spouse’s gross income. That’s all the money of have coming in from employment, investments, rental properties, government benefits--anything that brings in the cash.

Next subtract all your expenses except the necessary ones.

• Income Tax* *We subtract income tax, so you can see your after tax income.
• RRSP contributions
• Mortgage payment--but not the property tax
• Car payments
• Children’s expenses Education, clothing, insurance, sports, etc.
• Loan payments
• Credit card payments

Any payment that would be gone for good once you have paid off the balance.

Don’t subtract food, heat, hydro, Insurance, etc., these expenses will always be there in one form or another.

The figure you come up with is what you lived on last year.

Many people are amazed to discover they lived on $30,000 or less in after-Tax-Income. This figure will of course very with your level of debt and income.

Your Government benefits--at maximum amount--will give you roughly $16,000 per year.

If you live on $30,000 per year in after-Tax-income. You need another $14,000 yearly in tax-free or after-tax-Income to maintain your life style in Retirement. Once you have eliminated all your debts.

Once you have established how much your after-tax-income is. You will have an idea what you need to do for retirement.

It’s a straightforward process using a Financial Plan to figure out how to recreate that after-Tax- income.

Top of Page

Formula is:

This exercise is important. It shows you how much tax and debts are costing you.

The simplest way to increase your retirement income is the Insured Retirement strategy

Reverse Mortgage

Normally at least one person must be age 60 to consider a Reverse Mortgage.

The cash is tax free for two-reasons-first there is no tax on your principle residence, second you borrowed the cash and there is no tax on borrowed money.

You don’t have to pay back the loan. You may live in your house until you are no longer able or wish to. There is no fear of the reverse mortgage holder “foreclosing” on you.

Typically Reverse Mortgage lenders will allow a maximum of 40% of the value of your home to be loaned to you.

The Reverse Mortgage people require you to discuss the possibility of a Reverse Mortgage with your lawyer.

Like all loans, the Reverse Mortgage loan has interest costs that accumulate as time goes by. If several years down the road you change your mind and want to payoff the outstanding debt to re-own your home, free and clear. You might be unpleasantly surprised at the costs.

A Reverse Mortgage-like an Annuity-should not be rushed into, until you fully understand all the pros and cons.

If you would like to speak to someone about a Reverse Mortgage.
Click here for more information and go to my contact page. Send me a message and I can have someone in your area contact you with information about a "Reverse Mortgage"

Top of Page

Continue Working or Start a business

Some folks will keep working at their current jobs.

With the impending labour shortage coming our way. There will be an opportunity for many baby boomers to find part time and or full time work, after they have retired from their current work.

Many of these jobs will be of the minimum wage variety, but many will have health benefits that some retired people will need and add cash to their retirement income.

Canadian retirement is a little bit different. As baby boomers get older. They develop a greater desire to escape the long Canadian winter by going south.

If you have a job you will have to arrange time off to go south for any extended period.

A great alternative strategy to working at a job, is to start you own business.

You can do that part time while you are still working at your job. With the goal of having the business produce an income in retirement. Your own business is the simplest way to enhance retirement income.

(Update the system used to set up your own business online is now being taught at 25 Universities and Colleges in Canada and the United States--Check it out))

There is no need for anyone who works for a living to retire broke go broke in retirement, or lose their government benefits, but it can and does happen to people!

Don’t let that happen to you. Plan to enhance your retirement income. Discover your options today!

Return from Government Benefits to Home Page

Phone:        866-721-7781 ext. 232
Fax:            705-721-1556