Low Income Retirement Planning in Canada: living in a different world

Submitted by John Stapleton on January 15, 2013 - 2:25pm

Two years ago, I turned age 60 and realized through my volunteer work that low income seniors and ‘near seniors’ did not get good financial advice as they prepared for retirement. A few of us set out to change this. Now, two years later, with much help and advice from community agencies, as well as top financial advisors, I think we have a package of advice and tools on which low income retirees can depend.

Where did we start? We began with the fundamental assumptions about retirement planning that do not apply to low income retirees. For most people nearing retirement, the financial advice we get is based on two simple premises:

  • That our post-retirement income will be less than our pre-retirement income; and
  • That our taxable income will be lower at 65.

These premises are sound. Most of us make less in our senior years. That’s why most of us are told to buy RRSPs and wait to collect our CPP retirement benefits. That’s why the standard advice is to pay into an RRSP before registering for a Tax-free Savings Account (TFSA). And almost no one advises registering for an RRSP after age 65. But these assumptions, and the advice that goes with it, do not apply to low income adults entering their senior years. For those on fixed incomes before age 65, whether from earnings or an income security program, the story is different. The reality is that most low income seniors receive higher incomes when they turn 65. Old Age Security, combined with CPP and the Guaranteed Income Supplement, is often significantly higher than the social assistance, disability benefits, and low earnings they realize in the years leading up to age 65. And Old Age Security and CPP are taxable while social assistance and some disability benefits are not. This situation results in higher taxation once they reach 65, not lower. 

It’s almost as if potential low income retirees live in a different world where their situation is the polar opposite to what is faced by most retirees. This means low income retirees need very different advice than they get from the mainstream. But is this advice available? The answer is largely “no”. Financial institutions do not specialize in advice to low income retirees and they often don’t know the right answers. This means that the wrong advice is often provided to low income retirees.
 
The document Planning for Retirement on a Low Income provides low income retirees and their advisors with the information and the tools they need to make the right decisions for their financial future:

  • When to take CPP early retirement
  • When to avoid an RRSP
  • When to buy a TFSA
  • When to buy an RRSP

Here you will find what low income retirees should do if they are new to Canada or returning from a long life abroad. You will also find out how to maximize GIS payments. It’s important that low income retirees do not leave money on the table. They need it. You can help them make the right decisions. Download the advice packages and tools today.

With OAS/GIS, CPP, TFSA and OW changes effective in 2013, it is necessary to update our low income Retirement Package. 

The update may be found here on one page.

Future updates will occur quarterly or as needed. A more comprehensive update will be completed on a yearly basis. 

 

Please note that some have questioned whether it is always better for a low income person (one who will receive GIS) to take early CPP before age 65 given the graduated reductions in maximum  early CPP that began in 2012. See: http://www.servicecanada.gc.ca/eng/isp/cpp/postrtrben/advisors.shtml

 

Richard Shillington advises that by 2016, early CPP at age 60 reduces to a maximum of $567 a month. A prospective GIS recipient opting for early CPP at age 60 would have to live past the age of 95 (as of 2016 or later)  to receive greater net benefits by taking CPP at age 65. Currently,  (almost) no  prospective GIS recipient  could live long enough to make delaying CPP to age 65 financially advantageous.  

 

Also note that the CRA has made a disastrous change to its protocols for mail-in income tax returns, that will especially adversely affect poor seniors without access to touch tone phones or the internet. See Ellen Roseman's article here: http://www.moneyville.ca/article/1318627--tax-return-changes-raise-concerns-roseman