As you near retirement, you’ll need to start thinking about how to convert your savings into income, so that you can get the most out of your various savings and investment plans, ensuring a comfortable retirement income while keeping your taxes low.
First, let’s look at what you’ll get from the government
Canada Pension Plan/Québec Pension Plan
For both the CPP and QPP the amount of your retirement pension is 25% of the average monthly pensionable earnings on which you contributed to the Plan, if you file your application for a retirement pension at age 65. There is a maximum.
You are eligible for your CPP or QPP pension as of age 60. However, the earlier you retire before age 65, the less you will receive. You will be entitled to your full pension at age 65, and the more you postpone your retirement after 65, the more your benefits will increase, assuming you continue to contribute to the CPP/QPP.
Old Age Security (OAS)
The Old Age Security program is a Government of Canada program that provides you with a modest pension at age 65 if you have lived in Canada for at least 10 years.
Guaranteed Income Supplement (GIS)
The Guaranteed Income Supplement provides additional money, on top of the Old Age Security pension, to low-income seniors living in Canada.
Government programs provide you with some income. Now let’s look at the various payout plans for your savings.
Regardless of when you retire, you will be required to convert your registered savings into income by December 31st on the year you turn 71. There are a number of ways to do this.
You can buy a traditional annuity
A traditional annuity is a contract you purchase from an insurance company which provides regular payments either for life, with or without a guaranteed period or, in the case of an RRSP, to age 90.
Registered annuities are purchased with money accumulated in registered plans such as RRSPs, DPSP and registered pension plans.