Retirement Income Sources In Canada

Estimated reading time: 13 minutes

Retirement income sources should be a topic that everyone discusses, whether they are single, widowed, married, or common law because we all have to live after we stop working.

Your retirement income sources are just as important as your current ones, so you know the financial direction when you retire.

The money must come from somewhere, especially if you still have a mortgage to pay or rent due from month to month.

Today, I want to examine the different sources of income upon retirement in Canada.

Retirement Sources In Canada You Should Know About
Retirement Sources In Canada You Should Know About

Your Financial Future Upon Retirement

The best retirement plans begin with questions and actions well before retirement age, whatever that may be for you, as it differs from person to person in Canada.

Almost everyone I know among my circle of friends wants to know how much money they will have to retire.

It can be a scary time for older people because of health concerns and lack of savings, so it’s essential to tackle this topic in advance of your retirement years.

If you want to know about your retirement income sources, the best way to find out is to write them all down and then expand on what each has to offer you come retirement.

We were thrilled when Mrs. CBB and I finally hit a net worth of one million dollars at age 40.

At the same time, our financial advisor said that with the income we were considering for retirement, we’d have to save aggressively.

At the time, I wasn’t thinking about earning extra money during retirement, and to be honest, right now, I don’t want to keep working if I don’t have to.

That might change in 20 years, so keeping my options open is also very important, considering things I might do to earn more money.

Related: What to expect with little to no retirement savings

Retirement Income Sources In Canada

Income after retirement is based on many things, and as I mentioned above, creating a retirement budget is a great way first to understand how much money you will need when you retire.

For most people, income after retirement will significantly decrease.

However, if you have saved money in investments, own a home, or have a pension plan, you may earn more than you did during your working years.

Let’s have a look at the typical retirement income sources in Canada.

Related: What should your retirement savings plan look like?

The first two are Government Retirement Benefits.

  • Old Age Security (OAS) Guaranteed Income Supplement (GIS)
  • Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
  • Canadian Pension Plan Disability
  • Retirement Savings Plans (RRSP, TFSA, RRIF, Annuity, Pooled Retirement Pension Plan PRPP)
  • Personal Savings (House, Savings account, chequing account, stocks, business, bonds, mutual funds, real estate rental property, etc.)
  • Employment Pension Plan
  • Extra income from working side-jobs
  • Retiring Allowance from your employer
  • Other Foreign Pensions from outside of Canada

Old Age Security

The Old Age Security (OAS) is not based on your contributions but on how long you’ve lived in Canada over 18 and Canadian legal status.

The OAS is available to most Canadians after the age 65 or older.

For example, if you’ve lived in Canada, you must have lived here for ten years after your 18th birthday to collect OAS.

Since I’m a permanent resident in Canada, I must reside in Canada for ten years after my 18th birthday to collect OAS or GIS (if applicable).

Moving Away From Canada

On the other hand…

Canadian seniors who move from Canada to another country will be able to receive OAS pension only if they had resided in Canada for 20 years (after they turned 18).

If they had lived in Canada for less than 20 years, their pensions will be paid for the month that they leave and for six months after that.

For example, if a senior left Canada in January, he or she would get payments until the end of July.

If he or she returns to live in Canada, the payments will be restored from the month of return. Source.

Situational Reasons

As per the chart below, if you are single, widowed, or divorced, your OAS will be a maximum of $898.32 if you earn over $18,240 a year.

Depending on your situation, OAS will increase or decrease, with $898.32 being the highest allotted, as noted above, and to a couple who earns a combined income of $43,728 where one spouse or partner is not eligible for OAS.

The lowest OAS amount is $540.77 each month.

Source: Old Age Security

Your situationMaximum monthly payment amountMaximum annual income to receive the OAS pension Footnote 1
Old Age Security (OAS) pension
Regardless of your marital status$601.45$125,696 (individual income)
Guaranteed Income Supplement (GIS) amounts for individuals receiving a full Old Age Security (OAS) pension.
If you are a single, widowed or divorced pensioner$898.32$18,240 (individual income)
If your spouse/common-law partner receives the full OAS pension$540.77$24,096 (combined income)
If your spouse/common-law partner does not receive an OAS pension$898.32$43,728 (combined income)
If your spouse/common-law partner receives the Allowance$540.77$43,728 (combined income)
Your situationMaximum monthly payment amountMaximum annual income to receive the OAS pension Footnote 1
If your spouse/common-law partner receives the GIS and the full OAS pension$1,142.22$33,744 (combined income)
Allowance for the Survivor
If you are a surviving spouse or common-law partner$1,361.56$24,552 (individual income)

Guaranteed Income Supplement

These benefits are for persons aged 65 or older who wish to apply for their Old Age Security Pension and the Guaranteed Income Supplement.

The Old Age Security pension is a benefit payable to most Canadians aged 65 and over who meet the Canadian residence requirements.

The Guaranteed Income Supplement is a non-taxable amount added to the Old Age Security Pension for single or married persons or persons living in a common-law relationship residing in Canada with low income.

So you can apply for the GIS supplement if you are collecting the OAS and your income is considered low-income per current government thresholds.

My mother-in-law will do this when she turns 65 this year, as she has no income and her spouse has passed away.

You apply for the GIS or statement of income form ISP3025 tax form when you apply for your OAS and do so every year.

Determining GIS Payment

Using your income information from your federal Income Tax and Benefit Return, we will review your eligibility for the GIS every year.

If you still qualify, your benefit will be automatically renewed.

In July, you will receive a letter telling you:

  • That your benefit will be renewed;
  • Your income information is required.
  • That your benefit will be stopped or

You may be eligible for the Allowance if your spouse or common-law partner receives the OAS pension and is eligible for the GIS.

You must file your income tax return each year to be eligible for the GIS and also report the non-taxable income of the GIS on your income tax return.

It will then be deducted, so it is not part of your net or taxable income, as it’s more about reporting the income than anything.

I moved to Canada when I was 30, so I’ve been here more than ten years, so I will be eligible for the GIS and OAS (if applicable) when the time comes.

One of the things I’ve been doing since starting this blog is educating myself on what I can apply for and what I can’t do in Canada because I’m a permanent resident and not Canadian.

If you are a sponsored immigrant and you have resided in Canada less than 10 years after age 18, you are not eligible to receive an OAS income-tested benefit (the GIS, the Allowance or the Allowance for the Survivor) during your sponsorship period unless your sponsor:

  • suffers personal bankruptcy;
  • is imprisoned for more than six months;
  • is convicted of abusing you; or dies.

Related: How Not To Retire Poor In Canada

Canada Pension Plan

This is the big one for many Canadians because it is based on contributions during your working years and partially replaces earnings after age 65.

Generally, in Canada, people retire at 65 when they begin to collect their Canada Pension Plan (CPP) or take a reduced CPP at age 60 or an increased CPP working after age 65.

There is, however, no financial benefit to working after the age of 70 in terms of your CPP.

Whichever option you take the month after the date is when you will begin to collect your CPP benefits.

Some opt to retire early based on their pension plan at work, retirement savings, or due to health decline.

Either way, it’s essential to understand your retirement income sources and the average retirement income you will be earning.

CPP Determination

Your CPP is based on how many years you worked in Canada and paid into the plan.

I won’t get as much as someone who has lived and worked in Canada since I moved here from the UK when I was 30.

In Canada, they have set aside dropping periods that help Canadians with their CPP when they cannot work or have limited income.

These are through periods of parenting, disability, school, unemployment, or leaving work to care for someone, as in my mother-in-law’s case.

This provision affects 17% of your base contributory period, allowing up to 8 years of your lowest earnings to be dropped from the calculation.

This benefits all CPP contributors.- Canada Pension Plan

This protection allows the government to drop your lowest earning points when calculating your CPP benefit or crediting you with earnings depending on the circumstances.

During periods that you are disabled, you will not be penalized as well by CPP as they are not included in your contribution period.

When calculating the enhanced components of a retirement or survivor’s pension, individuals who become disabled in 2019 or later will have a credit dropped-in to the months they are disabled.

The value of the credit is based on the individual’s earnings in the 6 years before becoming disabled.- Canada Pension Plan

Caregiver Provisions

There are also child-rearing provisions for anyone who stopped working to care for children or received a lower income for the same reasons.

If you are eligible, the government will drop those years of low income from your CPP to calculate your CPP benefit.

They will also add pension credits to the five years before the birth or adoption of your child based on your average income if the amount is higher than your actual earnings.

This will protect your CPP benefits while you are taking care of children.

If you decide to work past age 65, they can drop years of low-income or no-income before calculating your CPP income.

My mother-in-law opted for early CPP, which was a big mistake, but she didn’t know what she was getting herself into then.

All she knew was that she could get her CPP early if she applied because it was an income source she thought she needed when she didn’t.

It also didn’t help that she likely had dementia at the time and was beginning to do things that were out of the ordinary for her.

On the other hand, some people love to work and want to continue working, like my wife’s uncle, a lawyer in his 80s who can’t seem to stop doing what he loves, and that’s perfectly fine.

Related: Saving for Retirement on a Low Income

CPP Payment Amounts

Remember that these numbers will change based on the date of this blog post and the CPP and are average pension income amounts for 2019.

CPP payment amounts are adjusted every January if there is an increase in the cost of living as measured by the Consumer Price Index.

Subsequent to the increase in the Consumer Price Index, CPP benefit amounts will increase by 2.3% in January 2019.

Type of pension or benefitAverage amount for new beneficiaries (January 2019)Maximum payment amount (2019)
Retirement pension (at age 65)$723.89$1,154.58
Post-retirement benefit (at age 65)$8.21$28.86
Disability benefit$1,001.15$1,362.30
Post-retirement disability benefit$496.36$496.36
Survivor’s pension – younger than 65$437.21$626.63
Survivor’s pension – 65 and older$310.59$692.75
Children of disabled CPP contributors$250.27$250.27
Children of deceased CPP contributors$250.27$250.27
Death benefit (one-time payment)$2,302.28$2,500.00
Combined benefits
Combined survivor’s and retirement pension (at age 65)$890.34$1,154.58
Combined survivor’s pension and disability benefit$1,115.35$1,362.30

Death And CPP

I was not blissfully aware of this until my father-in-law passed away, but no one can collect your CPP benefit if you are not over 70 when you die.

If you are over 70 when you die, then your estate must apply to earn up to 12 months of CPP income paid to the estate.

Also, your estate, spouse or common-law partner, or next-of-kin may be eligible for the CPP death benefit if minimum contribution requirements are met.

In addition, your spouse or common-law partner may be eligible to receive the CPP survivor’s pension, and your dependent children may be eligible to receive the CPP children’s benefit.- Canada Pension Plan

These are essential things we all need to know living in Canada because, upon the death of a spouse or common-law partner, things can get messy or missed when calculating any retirement income sources that are owed.

Related: Frozen Bank Account After Death Of Spouse Leaves Widow Broke

Retirement Income

How much do I need to retire?

Your retirement income depends on a few things, but if you want to retire early and take CPP, there are a few things you may want to consider first.

Related: What does your retirement lifestyle plan look like?

  • How your age will affect your retirement income
  • Do you have any other retirement income sources?
  • Your health and that of any family members
  • How much have you contributed to your CPP plan?
  • How much money you have saved in your retirement savings or work pension plan
  • What you want your retirement lifestyle to look like.

I spoke on the phone last night to a gentleman who says he was retired but still works on the side, earning extra money with his wife, who is a master gardener.

Since they both work after retirement and likely already collecting CPP, what they earn will still go towards their future CPP, which means they must pay into it still but will also increase their retirement benefits.

They charge $30 an hour and will come to your property and clean it up, landscape it, and add any flowers you’d like based on your needs.

This is how they earn money during their retirement years, although I’m not sure if it’s cash under the table or if they claim it as income.

This is where it can get tricky, but judging by his phone character, I’d say he pays his taxes as they are due.

Related: How to Estimate and Plan Your Canadian Retirement Budget

Early Retirement

Your retirement age depends on many things, but the main thing is your health because if you’re not well enough to work, you may have to opt for early retirement.

Other people want early retirement to enjoy more time doing what they love outside of work, which is why Freedom 55 is tossed around quite a bit.

Ideally, if you want to retire early, you have to look at whether you want a simple retirement plan or you’re looking at something more complex.

By this I mean do you want to travel and how often, buy a bigger house, new cars, etc.

How much money do you want to have each year to spend in your retirement years?

This is why it’s essential to understand where all of your retirement income sources are pointing and approximately how much you will get from them.

Comfortable Retirement Plan

What does comfortable mean to you?

Our financial advisor asked us this; he has a good point because it’s not something we considered before.

I believe there is a difference between a comfortable retirement plan and a simple one, where both are pretty easy-going. Still, one has more financial options than the other.

As Mrs. CBB and I looked at each other, we knew we had to take that question home, sit down with a piece of paper, and write down everything we wanted from our retirement.

This is a MUST if you want to understand your financial picture when you retire and the retirement income needed to take on the life you want to live.

If your house is paid off, that’s one thing you can eliminate from your monthly expenses, as for most people, it’s their most significant expense.

Creating a retirement budget is crucial for this reason, just as it would be to create a budget that incorporates a new mortgage payment before you become a homeowner.

When life shifts, make sure you have the finances to change with it, and the only way to know if you do is to create a financial plan such as a budget.

Retirement Benefits

Retirement offers plenty of benefits; the first is not waking up to an alarm to prepare for work.

You may notice your stress levels decrease and your enjoyment in the simple things life offers that you may have pushed aside during your working years.

You may also notice significant health benefits to retiring early or at age 65 because as we age, things tend to stop working as well as they used to.

Having the ability to come and go as you please, added exercise, and meditation are all added health benefits for just about anyone.

Retirement also allows you more time to spend with family or begin a new lifestyle you’ve always dreamed of.

You may have a hobby collecting dust or want to read more now that you have the time.

Whatever you do during your retirement years, as long as it brings you joy and fulfillment, enjoy this time of stress-reduced peace.

Your retirement sources, whatever they may be, will dictate what you can and cannot do financially when you retire.

Before you reach that stage in your life, research, get the low-down on numbers, create a mock retirement budget, and be prepared for what you can control.

Discussion: Have you written down all of your retirement income sources?

Do you know what you want from your retirement?

If not, now is the time to consider what your future may hold for you or how you can better build up your savings to accommodate your retirement needs.


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