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The Most Common Sources of Income

A Registered Retirement Savings Plan (RRSP) might be the cornerstone of your savings strategy, but your retirement income doesn’t have to come from just your savings. Here are common sources of income you may be able to tap into:

Government Retirement Benefits

In general, you can expect government benefits to replace about 30%-40% of your pre-retirement income. These benefits are a secure source of retirement income that will last your lifetime and increase over time to match the rising cost of goods and services.

Canada/Quebec Pension Plan (CPP/QPP)

If you work and contribute to either the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP), you will be entitled to receive pension benefits under these plans.

  • You must apply to receive the CPP/QPP.
  • Benefits are generally paid once you turn 65 or older.
  • There is an option to start at age 60 with a reduced monthly payment or after age 65 with an increased monthly payment. See How Do I Know When to Take My CPP/QPP?
  • Benefit payments are taxable and are based on your pensionable earnings and the amount of your contribution.

For details, visit:

Test your knowledge of the CPP/QPP—take our quick quiz

Old Age Security (OAS)

OAS is a pension you can receive if you are 65+ and have lived in Canada for at least 10 years—regardless of whether you have ever worked.

  • Generally, you should apply for the OAS benefit six months before you turn 65.
  • If you have a high income, you may have to repay all, or a portion of your OAS benefits.

For more on OAS, visit Service Canada

Guaranteed Income Supplement (GIS)

The GIS is a monthly non-taxable benefit payable to low-income Canadian residents.

  • GIS is available only if you are receiving OAS.
  • If you are eligible, your benefit payment amount depends on your marital status and income.
  • Some Canadians may also be eligible for provincial income supplements to subsidize their Old Age pension and GIS.

For more on GIS, visit Service Canada

Employee Pension Plans

If you contribute to a company pension plan during your working years, you may be entitled to receive pension income from your employer.

The two most popular types of plans are Defined Benefit plans and Defined Contribution plans:

A DB plan pays you a certain monthly income for your remaining life based on your level of earnings, the length of time you worked and other factors. It’s the employer’s responsibility to make sure there’s enough money set aside to pay your pension when you retire.

In a DC plan, you and your employer contribute a set amount to the plan, which is usually a percentage of your earnings. These contributions go into an account in your name where you choose how to invest the money. The value of the account will fluctuate based on the performance of the investments you choose. When you retire, you will generate income by withdrawing assets from the account.

Leaving your job soon? See What Are My Pension Options When I Leave Work?

A third type of plan offered by some employers is a Deferred Profit-Sharing Plan.

Although DPSPs are not considered formal pension plans, they can be a valuable source of retirement income. In this type of plan, contributions are made on your behalf. Contributions and any investment income earned remain tax-sheltered until you retire. At retirement, you can either transfer your employer's portion of the funds to your RRSP or select an eligible retirement income option.

  • Using estimated retirement dates, how much pension income can I receive?
  • Can I buy more pension credits now to increase my income during retirement?
  • Is my pension indexed to keep up with the cost of living?
  • What happens to my pension when I die? Are there survivor benefits? Are these survivor benefits reduced in any way?
  • Will my pension income affect my government benefits?

Income from Your RRSP

Hopefully, you’re already saving for retirement in an RRSP. Your money has the opportunity to grow faster in an RRSP because you don’t have to pay taxes on your investment income until you withdraw the money.

Regardless of whether you need the income or not, you must convert your RRSP to an income option, such as a Registered Retirement Income Fund (RRIF) or annuity, by December 31 of the year in which you turn 71.

  • A RRIF is the most flexible of the retirement income options since you have complete control over your savings.
  • You can hold mutual funds, Guaranteed Investment Certificates (GICs) and more in your RRIF, just like you do your RRSP.
  • The money you transfer to your RRIF continues to grow tax-sheltered until you withdraw it.
  • RRIF payments are considered taxable income in the year they are withdrawn. For most people, by the time they need the income, they are retired and in a lower tax bracket.
  • You must take minimum payment amounts from your RRIF annually. Try the RRIF calculator to quickly estimate the minimum income withdrawal you could receive from your RRIF.

Learn more about RRIFs.

An annuity is a financial contract between you and an insurance company. You deposit a lump sum with the insurer and, in return, receive guaranteed payments of a pre-determined amount. Each payment is a combination of a return of the original capital and interest income. Only the interest income is taxable. When purchasing an annuity, you effectively transfer all of the risk of investing to the expertise of the insurer.

You can buy different types of annuities:

  • Life annuity: Provides income payments for as long as you live—usually with a guarantee of continued payment to your beneficiary should you die.
  • Joint and last survivor annuity: Income payments are made for as long as you and your spouse live.
  • Term certain annuity: Specifies the number of income payments. If you die before all of the payments have been made, a death benefit is paid to your beneficiary.

Other Savings and Investments

On top of government, employer and registered savings plans, you can set aside money for retirement in other ways, including:

Reverse Mortgage

By the time you retire your home may be a substantial asset that can help you preserve your other investments, improve cash flow, and possibly even help reduce the taxes you pay.

With the CHIP Home Income Plan, you can convert a portion of your home equity into tax-free cash. It's called a reverse mortgage because unlike a traditional mortgage, the CHIP Home Income Plan pays you! You do not have to make any payments—principal or interest—for as long as you or your spouse live in the home.

To learn more about using the equity in your home, talk to an RBC Financial Planner or visit Canadian Home Income Plan (CHIP).

Part-Time Job

Whether to work part-time or not during retirement is both a personal and financial consideration. In addition to earning extra income, continuing to work can help you to maintain social connections and a sense of purpose. Just keep in mind that additional income will increase your tax bracket and could reduce the amount of Old Age Security or Guaranteed Income Supplement that you receive.

What to Check Out Next

How to Create a Steady Income in Retirement

Retirement Planning: Top Things to Consider

What are My Pension Options When I Leave Work?

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