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Retirement as a Newcomer in Ontario

We understand that as a newcomer to Toronto, your immediate concerns are likely absorbed by the numerous short-term tasks and goals. Ensuring your immediate financial security may take precedence over more distant objectives such as retirement planning. However, whether you currently have resources to dedicate to retirement or not, it is crucial to start planning early.


There is no age limit to begin retirement planning. However, the earlier you engage in this process, the easier it will be to achieve your goals.


The topic of retirement in Canada is complex. This article aims to provide an overview of government benefits you might be entitled to during retirement, savings and investment products to complement your retirement income, and planning advice to help you lead a comfortable and financially independent life in retirement.


Included in this article:


Acronyms


When discussing retirement in Canada, you'll encounter a world of acronyms that are best mastered to fully understand what you're doing! We deliberately chose to use English acronyms in this article (French names and acronyms are in the titles) as these are the ones you will predominantly use when speaking to friends, colleagues, and your advisor.

Acronyme

​Definition

Acronyme

​Definition

OAS

Old Age Security Pension

PSV

Pension de la Sécurité de la Vieillesse

CPP

Canada Pension Plan

RPC

Régime de pensions du Canada

GIS

Guaranteed Income Supplement

SRG

Supplément de revenu garanti

RRSP

Registered Retirement Savings Plan

REER

Régime enregistré d'épargne-retraite

RRIF

Registered Retirement Income Fund

FERR

Fonds enregistré de revenu de retraite

TFSA

Tax-Free Savings Accounts

CELI

Comptes d'épargne libre d'impôt

HISA

High Interest Savings Accounts

CEIE

Comptes d'épargne à intérêt élevé

RPP

Registered Pension Plan

RPA

Régimes de pension agréés


The Canadian Retirement System


Unlike perhaps your home country, Canada has a capitalization-based retirement system. This means you contribute for yourself, not the previous generation (pay-as-you-go). Some contributions are mandatory (and quite low). You'll mostly hear about voluntary contributions, allowing you to "build" the retirement you desire.


What is the retirement age in Canada?

Unlike some countries, in Canada, there is no mandatory retirement age for employees, and stopping work due to age is not a constraint. However, on average, the retirement age in Canada is around 65, the time when you become eligible for most government benefits.


 

Retirement Plans and Government-Directed Benefits



Canada Pension Plan (CPP) / Régime de pensions du Canada (RPC)

If you work in Canada, you may have noticed deductions from your salary for the Canada Pension Plan (CPP). This program provides you with a monthly pension in retirement if you have contributed during your working years. The amount you receive each month after retirement depends on the length and amount of your contributions, as well as the age at which you start receiving your CPP pension. You can choose to start receiving it from the age of 60, but the earlier you start, the lower it will be. For 2023, the maximum monthly pension starting at 65 is $1,306.57. However, on average, people receive around $772.71 per month in 2023.


Old Age Security (OAS) Pension / Pension de la Sécurité de la Vieillesse (PSV)

The OAS pension is a monthly payment Canadians begin receiving from the age of 65. To be eligible, you must be a Canadian citizen or legal resident, have lived in Canada for at least 10 years, and have an annual income below $134,626 (in 2023). Even if you continue working after 65 or have never worked in Canada, you can still receive OAS. The amount of the benefit depends on the time you have spent in Canada after the age of 18. As a newcomer, you may not receive the maximum amount if you have lived in Canada for less than 40 years at the time of retirement. The maximum monthly OAS pension in 2023 is $707.68 from 65 to 75 years and $778.45 after 75 years. You have the option to delay the start of your pension for up to five years to receive larger payments.


Guaranteed Income Supplement (GIS) / Supplément de revenu garanti (SRG)

GIS is a non-taxable monthly aid for low-income individuals receiving OAS in Canada. You may be eligible if you are 65 or older, your annual income is below $21,456 (2023), and you are single, divorced, or widowed. If you have a spouse or common-law partner, you may be eligible with a combined income below $51,408. The monthly amount for 2021 ranges from $636.26 to $1,057.01 depending on your income or combined income.


Note: Government benefit and pension amounts are subject to change and are typically reviewed quarterly or annually to account for inflation and the cost of living. All figures are accurate as of November 1, 2023.

 

Saving for Your Retirement


While pensions and government benefits can provide some income during your retirement years, they may not be sufficient to cover all your expenses. In general, most Canadians need to supplement these payments with their own retirement savings to maintain their standard of living. Here are the most common sources of income during retirement:


Registered Retirement Savings Plan (RRSP) / Régime enregistré d'épargne-retraite (REER)

An RRSP is designed to help you save and grow your money for retirement. It's a tax-deferred plan where you can contribute up to 18% of your previous year's income (up to a maximum limit). Your RRSP contributions will be deducted from your taxable amounts, and you will only pay tax on the capital or gains when withdrawn. Typically, in retirement, your income, including withdrawals from your RRSP, will be subject to a lower tax bracket. However, you can only own an RRSP until the end of the year you turn 71. After that, you must either make a lump-sum withdrawal, transfer your funds from the RRSP to a Registered Retirement Income Fund (RRIF), or opt for an annuity. Tip: When buying your first home in Canada, you can withdraw up to $35,000 tax-free from your RRSP.


Tax-Free Savings Accounts (TFSA) / Comptes d'épargne libre d'impôt (CELI)

Your TFSA can include a variety of savings and investment products. Although TFSA contributions are not tax-deductible, the capital gains, interest, or dividends accumulated in the account are not subject to tax. Withdrawals from the TFSA are not considered income, so you won't have to pay taxes on these funds at the time of withdrawal. Additionally, this money won't affect the amounts you're entitled to from OAS or GIS. TFSA contribution room is cumulative and starts accumulating the year you turn 18 or, for newcomers, the year you become a tax resident of Canada. The maximum contribution limit for TFSA changes each year, and for 2023, the annual contribution limit is $6,500.


High-Interest Savings Accounts (HISA) / Comptes d'épargne à intérêt élevé (CEIE)

While savings accounts in Canada generally offer relatively low-interest rates, some people open HISAs to keep a portion of their savings in the bank. The interest rate on these accounts depends on the financial institution and the terms of the banking product you've chosen.


Other Investment Products

You can also make personal investments in stocks, mutual funds, ETFs, or bonds to grow your money faster. As the gains from these products can be taxable, it's advisable to consult a financial advisor for investment advice based on your specific situation.


Employer-Sponsored Retirement and Pension Plans

In addition to your own retirement savings, you may also rely on income from a group Registered Retirement Savings Plan (RRSP) or Registered Pension Plan (RPP). These plans may be part of your employee benefits, where you, your employer, or both make contributions.

Many employers contribute on your behalf as part of these benefits or add contributions if you make them yourself. These employer-sponsored retirement and pension plans are an extremely important benefit that you should ensure to maximize if you have access to them.

 

Accessing Retirement Funds Outside of Canada


Can you receive the Canadian Pension Plan (CPP) if you live outside of Canada?

If you are a Canadian citizen or legal resident of Canada, you may be eligible to receive CPP payments even if you move abroad. However, your benefits will not be increased to account for differences in the cost of living that occur while you live abroad. Additionally, your payments will remain subject to Canadian income tax. To receive your CPP payments while living outside of Canada, you must inform Service Canada of your new address and provide proof of your identity. Once you've done that, your payments will be automatically deposited into your bank account every month.


Can you receive the Old Age Security Pension (OAS) if you live outside of Canada?

Those who move outside of Canada can continue to receive their OAS pension, provided they have lived in Canada for at least 20 years. The pension amount will not change, even if the cost of living is higher in their new country of residence. However, OAS pension payments are considered taxable income in Canada, so recipients will need to file a Canadian income tax return to receive their benefits.


What happens if I stay outside of Canada for more than 6 months?

Many Canadian retirees enjoy the lifestyle of "snowbirds," spending the winter months in warmer climates and returning to Canada in spring and summer. However, Canadian residents who are absent for more than six months may be classified as non-residents of Canada. This can have several implications, including the need to pay Part XIII tax on any income from Canada. Non-residents may also be required to file additional tax returns in the U.S. or other countries where they have income-generating assets. Be sure to consult a tax professional to understand what to expect. Apart from tax considerations, there are no implications to leaving Canada for more than 6 months.

 

Tips for Retirement Planning as a Newcomer to Canada


To succeed in your retirement planning in Canada, quickly engage a financial planner. They will analyze your financial situation and create a personalized plan based on your income, benefits you are entitled to, and other specific needs.


Evaluate your financial needs for retirement, aiming to replace 75 to 85% of your current income to cover living expenses.


Adjust your retirement plan to incorporate planned or unforeseen life changes, ensuring flexibility to handle unexpected situations.


Regularly review your savings and investment goals based on changes in your income and expenses. Adjust them as needed with the help of your financial advisor to ensure an optimal balance between risk and return.


Be aware of the conditions for accessing government benefits and retirement plans. Plan access to these funds based on your needs while considering potential fluctuations in the monthly amount you are entitled to.


Although retirement may seem distant, starting the planning process early will facilitate covering expenses at an advanced age, with the invaluable assistance of a financial planner.


 

Simple Relocate is your relocation partner in Toronto. We can assist you in settling in Toronto and provide a variety of services to ease your move to Ontario.



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