All posts by Jonathan Chevreau

Paycheque to paycheque: the fate of half of Canada’s employees

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Living paycheque to paycheque? You’re hardly alone. As my latest Financial Post blog reprises today, almost half of Canadian workers (47%) told the Canadian Payroll Association’s 2017 survey that they’d find it hard to meet their financial obligations if their pay cheque were delayed by even a single week.

You can find the full blog by clicking on the highlighted headline here: Nearly half of Canadians would face a financial crunch if paycheque delayed by even a week, survey shows. The  article also appears in the Thursday print edition, page FP5, under the headline Nearly half of Canadians walk financial tightrope.

As I point out at the end of the FP piece, there’s some irony in that the way out of this savings conundrum is to make an effort to save paycheque by paycheque: a strategy the CPA and other financial experts generally term “Pay Yourself First.”

That means using your financial institution’s pre-authorized chequing arrangements (PACs) to automatically divert 10% of net pay into savings the moment a paycheque hits your bank account. Just like income taxes taken off “at source,” the idea is that you won’t miss what you don’t actually receive.

Pay Yourself First

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If an enhanced CPP takes you off GIS rolls, count your blessings!

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Let’s HOPE this advisor’s financial plan means this senior couple won’t qualify for the GIS!

Here’s my latest MoneySense column, which looks at the headline-grabbing “news” that an  Enhanced Canada Pension Plan (CPP) would mean roughly 243,000 low-income seniors might not be eligible for the Guaranteed Income Supplement (GIS) once the full-bore enhanced CPP system is in place in the year 2060.

Click on the highlighted headline for the full piece: Retirees should be happy not to qualify for GIS.

None of the five financial experts whose input appears in the piece disagreed with this article’s premise: that far from being a bad thing to make so much from CPP (or any other source of retirement income) that you exceed GIS minimum income thresholds, it’s actually a good thing. Yes, you have to work at a job to earn CPP benefits, whether “enhanced” or not, and yes, this entails payroll contributions taken off the top. That’s no different than anyone with a good employer pension or who saves in RRSPs or any other vehicles.

That’s what saving is all about: providing for future needs by taking a little out of current income. It’s all about living within your means, being responsible for your own future and all the other themes that the Financial Independence Hub espouses every day.

The Hub and MoneySense recently looked in-depth at OAS and the GIS, which you can find here.  And earlier today we looked at Survivor benefits for CPP, OAS, GIS and other sources of retirement income.

One of the sources for the GIS article was TriDelta Financial’s wealth advisor, Matthew Ardrey. Time and space limitations meant we could include only a snippet of Matthew’s analysis in the MoneySense column itself but he has given us permission to run his whole opinion below:

TriDelta Financial’s Matthew Ardrey

The government plans to enhance CPP through two measures. One, increasing the contribution amount from 25% to 33% and two by increasing the income limit on which contributions are made to $82,700. Combined these two measures will take the maximum pension of $13,370 today to about $20,000 in the future.

There will be some measures to offset these contributions for the employee including an enhanced Working Income Tax Benefit (WTIB) to help offset the cost for lower income workers and making the enhanced contributions a tax deduction instead of a tax credit. Though that helps out today it does nothing for the low-income earner in retirement.
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Retired Money: Pension Survivor Benefits

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Pension Survivor Benefits are one of those morbid topics every couple needs to investigate. No matter how happy a marriage may be, at some point the phrase “till Death do us part” sadly comes into play.

My latest MoneySense Retired Money column looks at the somewhat morbid topic of survivor benefits on employer pensions, savings and especially the triad of the three major Government retirement benefits we’ve looked at in recent Retired Money columns: the Canada Pension Plan (CPP), Old Age Security (OAS) and for some, the Guaranteed Income Supplement (GIS).

You can access the full MoneySense column by clicking on the highlighted headline here: Survivor Benefits: A Guide to CPP, OAS, GIS and more.

The piece begins with a look at the more or less straightforward survivor benefits of employer-sponsored pensions. It notes that pension law requires that you and your spouse be offered a joint-and-survivor pension that makes payouts until both partners die. While pension administrators will likely encourage the pensioner to provide for the spouse, some may offer a spouse the option to waive their pension rights.

Depending on the paperwork signed when you elected to start receiving a corporate pension, your spouse may be entitled to a good percentage of what the lead pensioner is promised: it can range from 50% to two thirds to 75% and may even be 100%.

Things are relatively simply on RRSPs and RRIFs. Ideally you and your spouse have named each other the beneficiary on your RRSPs and eventually RRIFs. If so, the rules are relatively simple: the money in the one spouse’s plan rolls over tax-free to the survivor. It’s only when the second spouse dies that there will be a large tax liability to the government.

Tax-free Savings Accounts (TFSAs), introduced in 2009, have a special wrinkle and here we will refer you to a past Retired Money column. The main thing is to ensure you and your partner do the paperwork and name each other a Successor Holder for your respective TFSAs.

Given the preceding, readers may be surprised to find that survivor benefits for CPP, OAS and GIS are quite a bit more complex, and may be less generous than you may have supposed.

No real OAS Survivor Benefit after 65

For starters, there really is no OAS Survivor benefit after 65, since Ottawa assumes the survivor will have their own OAS benefits. There is an income-tested transitional benefit called the Allowance for the Survivor but it’s only for those aged 60 to 64 and subject to various conditions.  Service Canada says once these beneficiaries reach age 65, their benefit is converted to an OA pension and “possibly the Guaranteed Income Supplement.”

Similarly, Survivor Benefits for CPP may be less than couples may have been hoping for, particularly if both had been receiving the maximum.  A survivor who is 65 or older and not already receiving CPP benefits qualifies for a survivor benefit of 60% of the deceased spouse’s CPP pension, assuming benefits beginning at 65.

Combined CPP Survivor Benefit and Retirement Pension can’t exceed $1,114.17 a month

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Retired Money: A third of OAS recipients can also expect Guaranteed Income Supplement

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My latest MoneySense Retired Money column was published today and looks at the Guaranteed Income Supplement (GIS) to Old Age Security. You can find the full column by clicking on the highlighted headline adjacent: What to expect when applying for GIS.

Service Canada says as of June 2017, 1.94 million seniors were receiving the GIS, roughly a third of the country’s 5.93 million OAS pensioners.

You can get an overview of the GIS program at the Service Canada web site. It says the first requirement to receive GIS is that you also qualify for and are receiving OAS. So that means you have to be age 65: unlike CPP (which can pay reduced benefits as early as age 60), there’s no such thing as early OAS or early GIS, except in certain special circumstances. If you were automatically enrolled in OAS, you should apply for GIS three months before your 65th birthday.

Maximum monthly GIS payments for a single is $871.86: tax-free!

How much can you receive if you qualify? Service Canada’s media relations department says that as of the July to September 2017 quarter, maximum GIS amounts for those receiving the full OAS pension of $583.74 a month are $871.86 a month for a single, widowed or divorced OAS pensioner (so adding the two, $1,455.60 a month); $524.85 if your spouse/partner receives full OAS, $871.86 if your spouse does not receive an OAS pension or the Allowance, and $524.85 if the spouse receives the Allowance.

Thresholds to qualify are very low

Of course, the fact that two thirds of OAS recipients do NOT qualify for GIS suggests that most people are unlikely to qualify: after all, GIS has been referred to in some circles as “Senior’s Welfare.”

In the case of a couple with a combined income of no more than $23,376 and where the spouse gets full OAS, the maximum monthly GIS for the other spouse is $524.85. If the partner is not receiving OAS and the combined income is no more than $42,384, the individual will get some GIS; they will get the full $871.86 monthly GIS benefit if they have no other income. In the case of a couple making no more than $42,384 and where the spouse is receiving the Allowance, the maximum monthly GIS for the other partner is $524.85. For updated numbers, click here.

Still, if you’re close to these thresholds there’s little to lose by seeing if you may qualify. It used to be that Service Canada didn’t always go out of its way to notify low-income seniors that they may qualify for GIS. This has since been rectified: free money that’s also tax free is certainly something worth investigating!

The “nice” problem of million-dollar RRSPs

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Are million-dollar RRSPs a looming tax problem for soon-to-retire baby boomers or simply a nice problem to have?

My latest Globe & Mail Wealth column has just been published on page B9 of the Tuesday paper and online, which you can access by clicking on the highlighted headline here: The secret to paying less tax in retirement.

As one expert cited — Doug Dahmer, who often guest blogs here at the Hub — tax is perhaps the single biggest expense in Retirement. This often becomes apparent when those growing RRSPs the Boomers and others have been accumulating are forced to become RRIFs or Registered Retirement Income Funds at the end of age 71, at which point they become taxable at your highest marginal rate, just like  interest or employment income. Million-dollar RRSPs are not that uncommon, according to the sources consulted for the column, whether individually or shared by couples.

(I say”forced” but of course there are two alternative options: annuitize or cash out. Very few people choose the latter option, while annuitization or partial annuitiization is certainly a valid option as you progress through your 70s, although ideally when interest rates are higher.)

The initial RRIF withdrawal percentage is 5.28% at 71 but minimum withdrawal rates rise steadily over time, hitting 6.82% at age 80, 10.21% by 88 and reach 20% by age 95 and beyond.

Draw down RRSPs/RRIFs early, delay CPP/OAS to 70

As the article notes, this has two implications: one, since it’s unlikely most investors with balanced portfolios will generate returns as high as the withdrawal percentages, most RRIF recipients will start breaking into capital. Continue Reading…