Government Retirement Savings Plan (GRSP): How to make the most of them
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Why is retirement planning necessary?
Planning for your retirement allows you to live your post-working life with less financial stress than if you did no financial planning. Retirement planning can help you enjoy your golden years more because you have anticipated some of the financial challenges that may arise.
The Canadian Retirement Income Calculator by the federal government is a comprehensive and easy to use retirement calculator that gives you an estimate of your retirement income.
Retirement Income – Details, benefits and how to access them
There are different types of retirement income, including from government sources. These are detailed below.
Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
The Canada Pension Plan (CPP) and Quebec Pension Plan (QPP) provides a monthly payment to those who contributed to CPP or QPP during their working years in Canada. The amount you receive each month depends on:
- How long you contributed to the plan
- How much you contributed in total
- The age when you start receiving your CPP or QPP retirement pension
You can apply and receive the full CPP retirement pension at age 65 or you can receive it as early as age 60 (with a reduction) or as late as age 70 (with an increase).
For more information on CPP or QPP, please visit the Government of Canada site on Canada Pension Plan here.
Old Age Security (OAS) Pension
As the Government of Canada’s largest pension program, Old Age Security (OAS) pension is a monthly benefit for Canadians over 65 years of age. Unlike the CPP or QPP pension plan, you are eligible to receive OAS benefits while you’re still working or even if you have never worked. You are not required to contribute to the OAS pension in order to benefit from it.
In addition to the OAS pension, there are also three types of OAS benefits:
- Guaranteed Income Supplement (GIS) – This is a monthly, non-taxable benefit that can be added to your OAS pension if you live in Canada and have low income.
- Allowance – For those who are between 60-64 years of age and your spouse or common-law partner is already receiving OAS pension and the additional GIS, you may be eligible to receive this allowance.
- Allowance for the Survivor – If you are between 60-64 years of age and are widowed, you may be able to receive this benefit.
For more information on OAS, please visit the Government of Canada website on Old Age Security here.
Registered Retirement Income Fund (RRIF)
The Registered Retirement Income Fund (RRIF) allows you to withdraw your RRSP savings as retirement income. You don’t have to pay taxes on money in an RRIF until it is withdrawn. Some additional details about an RRIF include:
- There is a minimum amount of money that must be taken out each year after you turn 71.
- The minimum amount you can withdraw is based on your age.
- There is no maximum on how much you can take out every year.
For more information on a RRIF, please visit the Government of Canada website on Registered Retirement Income Fund here.
Using your home equity
An additional source of income can also be attained in retirement if you own your own home. You can use the equity you have built up in your home by getting a reverse mortgage.
A reverse mortgage enables you to stay living in your home and age in place. Reverse mortgages are available to homeowners 55 years and older and does not require any regular mortgage payments, not even interest payments.
To qualify for a reverse mortgage, the lender will consider the following:
- You and your spouse’s age
- Location of your home
- Your home’s appraised value
- Your home equity
To find out more about a reverse mortgage, please visit the Government of Canada website on Reverse Mortgages here.
There are many other retirement savings plans that may be sponsored by your employer. To find out more about these and other savings plans, you can visit this Government of Canada website, which explains all of the details surrounding these and other sources of retirement income.