Tag Archives: Canada Pension Plan


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An OAS and CPP Primer, understanding sources of government retirement income

An OAS and CPP Primer

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Understanding Government Sources of Retirement Income in Canada

The majority of Canadians spend their lives drawing income from one main source or employer during employment years. Retirement income, however, requires careful planning since we can no longer depend on one main source for our income.

Old Age Security (OAS) and Canada Pension Plan (CPP) are the two sources of retirement benefits that come from the Government of Canada. Both are significant components of your retirement income plan.

Old Age Security

  • Your monthly OAS benefit payment is based on your individual income (not household income), and you do not pay into it directly
  • You may still collect this benefit even if you’ve never worked or are still working
  • Monthly benefit payments are available to seniors age 65 and up
  • You can apply for OAS as early as 11 months before you want your benefits to commence
  • If you don’t meet the full criteria, you may still be eligible to receive a partial pension
  • You may defer receiving OAS benefits up to 5 years after you become eligible to get a higher monthly amount
  • There are no survivor benefits
  • Eligible seniors are automatically enrolled and do not need to apply for this benefit
  • This benefit is fully taxable
  • Visit https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/payments.html for more information on OAS Payment Amounts

Canada Pension Plan

  • Your monthly CPP benefit payment depends on the level of contributions made by you and your employer during your employment
  • You may choose to receive your full benefit at age 65
  • You may receive your benefit as early as age 60 with a deduction
  • You may postpone your benefit payments until the age of 70 to receive an increase in your monthly payment
  • Upon death, a lump sum is paid to your estate, up to a maximum of $2500
  • You must apply for this benefit, it does not commence automatically
  • This benefit is taxable income
  • Visit https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html for more information on Canada Pension Payment Amounts

Old Age Security and Canada Pension Plan are just two of several possible retirement income sources. Contact Brooks Financial today to get started on creating a retirement income plan that will minimize your tax payments and maximize your income during your retirement.


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Creating a Holistic Retirement Income Plan: Income Tax and Portfolio Plan

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In our last two posts, we discussed the three main considerations when creating a holistic retirement plan – lifestyle plan, after tax income sources and income tax and portfolio plan. This week, we will discuss your income tax and portfolio plan.

Income Tax and Portfolio Plan

At Brooks Financial, our goal is to help you to determine the most effective way to draw the income you need during retirement, while paying the least amount of tax, with the lowest risk possible. We will align your investments with your income needs and conduct an ongoing assessment of the impact of your plan on your net worth. A plan like this will act as a starting point from which Brooks Financial can also help you:

  • Calculate the gap – essentially your savings deficit or surplus.
  • Account for investment income and inflation (CPP and OAS is protected from inflation but work pensions often are not. Given our low interest rate environment, GICs and annuities do not provide enough return to provide protection from inflation).
  • Assess your current investments and rate of return.
  • Determine what additional investments are appropriate to accommodate your plan going forward.
  • Identify whether you need an annuity if your current guaranteed income sources will not cover your expenses, insuring your income for the duration of your life.

It’s never too soon to plan for a happy, comfortable and secure retirement. At Brooks Financial, we calculate a few alternative scenarios for your income tax and portfolio plan in the event that your retirement income and returns are lower, or your expenses are actually higher than expected. Retirement income planning must be strategic in nature, and you have only one real chance to get it right. We conduct a thorough, methodical assessment to leave no stone unturned. Let’s get started! Contact Brooks Financial to create your holistic retirement income plan today.


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Creating a Holistic Retirement Income Plan: After Tax Income Sources

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Last week, we introduced the three main considerations when creating a holistic retirement plan – lifestyle planafter tax income sources and income tax and portfolio plan. In our last post, we focused on lifestyle plan – determining your goals and main priorities for retirement. Once this has been established, we calculate how much money you will actually have during retirement, versus how much you will need to meet your goals and lifestyle plan.

The next step is collecting the information we require to help you calculate your after tax income sources.

Fixed Income Sources

Prior to meeting, we ask that you list and evaluate your fixed retirement income sources. In Canada, this would generally include your:

  • Canada Pension Plan income and your spouse’s CPP income
  • Old Age Security (OAS) for you and your spouse
  • Work pensions
  • Annuities you plan to collect
  • Additional income from working part-time during your retirement
  • Alimony
  • Income from any rental properties you may have
  • One-time lump sum income sources such as life insurance proceeds, inheritances, the sale of any properties such as you home, cottage or vacation and investment properties

Retirement Expenses and Tax Owing

First, list and calculate your retirement expenses. This will include:

  • Living expenses such as accommodations (rent or mortgage payments)
  • Utilities
  • Food and entertainment
  • Transportation
  • Travel
  • Memberships

Next, we can determine if you qualify for any tax credits or deductions, what you will be paying tax on and how much you will be paying.

At this point, you will have a few other important considerations:

  • Going forward, will you require more insurance than you and your spouse have currently?
  • How much money will you put into an emergency fund?

Once we calculate and analyze your total assets, tax owing and your projected after tax investment income, we can establish when you will be able to afford to retire, and will be prepared to move on to the final step of your holistic retirement plan – your income tax and portfolio plan.


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Creating a Holistic Retirement Income Plan: Your Lifestyle Plan

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Are you prepared for retirement? Do you know where your income will come from? The retirement landscape has changed considerably and people can no longer depend on a traditional pension income from a single employer. Fewer people have pension plans and many have had multiple jobs over the years. People are retiring later, and part time work is becoming more common during retirement. These changes, combined with advances in health care and an increase in life expectancy, leaves many people concerned they may outlive their retirement income and not be able to retire when they had hoped to. Now, more than ever, it is important to have a retirement income plan you can feel confident about.

There are three main considerations when creating a holistic retirement plan – lifestyle plan, after tax income sources and income tax and portfolio plan.

Lifestyle Plan

First, we will discuss the components of your lifestyle plan. Prior to meeting, we ask that you determine:

  • Your goals and main priorities for retirement.
  • What do you and your spouse plan to do?
  • How old will you be when you retire?
  • How your current lifestyle and spending pattern compare to how you plan to live and what you plan to spend during retirement.
  • If you plan to continue working part time?
  • If you will be required to support any dependents during your retirement?
  • Where and how do you plan to live?
  • If you plan to travel?
  • What hobbies will occupy your spare time?
  • If you expect to have additional expenses as you grow older?

You and your spouse play an integral role in the planning process, particularly in the early stages, however working with an experienced financial planner will introduce a holistic approach, drawing valuable resources from a pool of experienced professionals. At Brooks Financial, we understand and recognize that each part of the planning process is interrelated. No two situations are the same, which is why a holistic financial planner needs to understand the whole picture, including your goals and plans for retirement, as well as your income sources before they can help. We spend time, especially during the first interview with you, to listen to your full story. Based on your individual goals and circumstances, we will devise a customized investment strategy, recommend the appropriate insurance to protect and guarantee your income, identify unnecessary liabilities and assist in estate planning for the surviving spouse. We are confident our holistic approach to retirement income planning will help you navigate the uncertainties and establish a plan that will make you feel very secure and positive about your future.


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Divorce? Not All Assets Are Equal – Tesia Brooks CFP CDFA

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imageNot All Assets are Equal

It is common with separating couples for one spouse to want to keep the family home while the other wants to keep their pension.

I recently worked with a woman going through a divorce after 15 years of marriage.

She had worked part time for the duration of the marriage to enable her to have more time at home with their children. He had continued to grow his career in his corporate position that provided him with a defined benefit pension.

During the separation process, the wife wanted to keep the family home to ensure a stable environment for the children. The husband wanted to keep his pension.

Based on the net property statement (value of all the marital assets minus marital debts including taxes) this scenario saw the wife owing her husband an equalization payment.

When I sat down with her to review the outcome of this scenario she was shocked. She had no idea that she would have to pay him (an equalization payment) as she thought the value of the pension would outweigh the value of the house.

I also showed her what her financial life would look like in the short term and 25 years down the road, based on this scenario.

As it was, the husband would be in a good financial position as his pension assets would continue to grow and provide sufficient cash flow throughout retirement. On the other hand, she would be left with no pension in retirement and would have to sell the house and make major adjustments to her lifestyle

My analysis of the situation brought a major shift in the negotiations toward a divorce settlement.

I ran another scenario removing the equalization payment and reducing the duration for spousal support. We then looked at the possibility of selling the family home with both spouses downsizing their accommodations and splitting the net proceeds of the home and splitting the pension amount.

These various scenarios allowed her to feel confident in the negotiations knowing that she would be comfortable today and her future would be more secure.

In the end, the couple had received sound legal advice through their lawyer while we, as Certified Divorce Financial Analysts provided her with an equally valuable kind of support – neutral and unbiased analysis of her financial situation.

If you are thinking about getting divorced or are already in the process be sure to include a Certified Divorce Financial Analyst on your team, it could save you thousands of dollars!

 

Tesia Brooks CFP® CDFA™ successfully completed the course material for “The Financial Aspects of Divorce”, passed the examinations and was awarded the CDFA™ designation in the spring of 2010. She has a professional financial background that spans 37 years, graduating as a Certified General Accountant in 1991 and being awarded the Certified Financial Planner (CFP®) designation in 1998. Tesia has experienced divorce first hand giving her personal insight and compassion for those who are going through the experience of divorce.


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Why Hire a CDFA – Tesia Brooks CFP CDFA

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Most people don’t go into a marriage or common-law relationship with the idea that one day we will get a divorce. Divorce is about loss of love and trust in your partner, shattered dreams and plans, making adjustments to lifestyle and money and a time of huge emotional turmoil leaving even the savviest lost when it comes to sorting out the family finances. Divorce happens in a very high percentage of relationships. If you are going through a divorce you need all the help you can get moving through the painful process of separation. Your team of professionals should include a Certified Divorce Financial Analyst (CDFA™) who will assist you in:

  • gathering the necessary documents required for financial disclosure
  • a financial analysis of your assets, liabilities, incomes and child and spousal support payments, taking into consideration inflation and changing tax consequences
  • articulating your needs and hopes for the future
  • gaining insight with respect to your pension plans, RRSPs, investments and insurance options, including the need for ongoing protection
  • understanding the tax and other financial consequences of keeping or giving up certain assets
  • developing realistic budgets for today and into the future
  • gaining insight into various settlement options and how those options will impact you today, during your pre-retirement years and through your retirement years

If you are thinking about getting divorced or are already in the process be sure to include a Certified Divorce Financial Analyst on your team, it could save you thousands of dollars!   Tesia Brooks CFP® CDFA™ successfully completed the course material for “The Financial Aspects of Divorce”, passed the examinations and was awarded the CDFA™ designation in the spring of 2010. She has a professional financial background that spans 37 years, graduating as a Certified General Accountant in 1991 and being awarded the Certified Financial Planner (CFP®) designation in 1998. Tesia has experienced divorce first hand giving her personal insight and compassion for those who are going through the experience of divorce.


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Phil’s Learning Curve – Canada Pension Plan

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– Our national public pension plan is the Canada Pension Plan (CPP) which covers everyone except residents in Quebec which, when the CPP was created in 1966 fought and won the right to create it’s own program.

– Thinking about retirement, in a couple years or more? Everyone should know a few basics about pension plans. Public or private they’re important to understand when planning for retirement. I’ll share what I’ve found out about public plans here then go over private pensions in a following blog.

– We also have two national income support programs “Old Age Security” and Guaranteed Income Supplement”. These by definition are not pensions and I’ll talk about them in another post.

– When the CPP was created the contribution rate was set at 1.8% of our “pensionable earnings” shared equally between employees and employers. Today that contribution rate is 9.9% so in 2011 for example, pensionable earnings were between $3500 and $48,300 a year. At the maximum rate you and your employer each paid $2,217.60 to the plan. (If you were self-employed you paid both employer and employee shares –  $4,435.20) This contribution amount increases every year because of indexing.

– You can start drawing benefits on the CPP at age 60 or as late as 70 years of age. The longer you delay taking payments the higher the month payment. Indexed to inflation your payments will increase every year.

– In 2011 the maximum benefit for a 65 yr old was $960/month ($11,520/yr). Most Canadians though don’t qualify for the maximum benefit as for some or all of their working lives their income was below the “pensionable earning” ceiling or they didn’t contribute for enough years. (Stay at home parents often don’t contribute while raising families for example.) The average monthly payment in 2011 was $512.38 ($6,148.56/yr). So CPP will replace only a small portion of a working person’s income on retirement, about 24% of the Maximum pensionable earning. If you earned more say $70,000 CPP would only replace 16% of the income lost on retirement.

– While your CPP benefits can begin at age 60 they are “penalized”, in 2012 it was a 31% reduction. (.52%/month prior to reaching age 65) Conversely if you postpone taking benefits your months benefit increases, in 2012 it was by .64% for every month you delay after reaching 65. So if you waited to age seventy (60 months) your CPP income would be increased by 38.4%.

– Apply those numbers to a 2011 retirees at age 60 would receive $614.40 a month ($7,372.80/yr), a 70 yr old retiree applying would receive $1,363.20 a month ($16,358.40/yr) double the benefits by waiting.

– There’s lots of other “wrinkles” built into the CPP and ways in which it can affect your retirement income, both good and bad depending on your individual and family circumstances.  See a Certified Financial Planner, start sooner than later and monitor your plan’s progress regularly. Your most important asset is good retirement income planning.

  My name is Phil and I’m a 59 year old professional who represents a pretty average Canadian worker thinking about retirement. I’ll be the first to say that “I don’t know much, but I am willing to learn”. Follow my posts here as I start the process of becoming “financially literate!”

 

 


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