THE OLD CURMUDGEON: PENSION PROBLEMS

curmudgeon

The Canada Pension Plan (CPP) and saving for retirement: I’ve a lot to say on this

if you’re Canadian and facing retirement in the next few years.

You probably put money away as your nest egg, maybe in an RRSP – a Registered

Retirement Savings Plan. You were enticed into the Plan with the incentive of

getting a tax deduction. You saved tax at that time, probably 35% or less, so you

could have a retirement income taxed at a much lower rate.

OK .. so far, but did you know that every dollar of income you receive from that

RRSP, company pension, or part time earnings affects what you might receive in

the Guaranteed Income Supplement (GIS)? The GIS was created to offset the

relative poverty of old age. Basically each dollar of income above the CPP reduces

your GIS by 0.50 cents! That’s like a 50% tax! Not really what you expected!

If this matters to you then do get more information you can download it from

www:cra-arc.gc.ca. Up till now, banks have collected interest on the loan you got

to make your contribution to the RRSP, and any mutual fund broker got lots of

fees! That’s why they really market this stuff! You took all the risk, only to pay

more “tax” on the way out than you saved on the way in!

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If you’re not in Canada this may be irrelevant information, unless your country

has something similar. And if you are Canadian and have lots of money in your

Pension and RRSP’s then you are in good shape so don’t worry. This matter only if

you’ve got less than say $500,000 in RRSP’s at today’s low rates of interest.

A better strategy on retiring would be to collapse the RRSPs via a RRIF and draw

the proceeds as a pension, split it with your spouse, pay off any mortgage, and

put the rest in TFSA’s. By eliminating added income above CPP you’ll both

probably qualify for GIS.

 

*The Old Curmudgeon is a regular, featured segment written on paper with pencil and mailed in, authored by wrinkly old bastard who doesn’t care for your opinions, anyway*