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When is a good time to retire?

As a financial planner, this is a common question. The answer is that you can retire anytime, once your income flow does not require you to have employment, and you have enough to live on in the lifestyle you want.

Canada has two government programs you may be entitled to as possible sources of retirement income.

The Canada Pension Plan (CPP) is a program that is mandatory if you are employed. You contribute and the contribution is matched by your employer. The contributions depend on your work history. When can you begin taking CPP? As early as age 60 and as late as age 70. If you take it when you are younger, you have a reduction of the amount, which is supposed to last for the remainder of your life. If you delay and choose to take it when you are past the age of 65, the amount will be increased. Often, people take CPP starting at age 65. Why this age? Age 65 also happens to be the age when a Canadian can qualify for Old Age Security.

Old Age Security (OAS) is a pension for Canadian residents. If you have lived in Canada for at least 40 years, you will receive a full OAS pension. For seniors without any other source of income, Canada provides a Guaranteed Income Supplement (GIS) so seniors do not fall through the cracks. Age 65 is when you qualify to be paid OAS, but you can delay until the age of 70. However, there is one catch. If your income exceeds a certain amount ($79,845 for 2021), your OAS will reduce; we call the OAS clawback. Some Canadians with high income may even have their OAS clawed back 100%!

So there are a few decisions to make before you decide when to take the CPP/OAS income:

a) how much income is needed for retirement expenses

b) how much income is needed for retirement hobbies and activities

c) health conditions

Noel D'Souza of Money Coaches Canada says: "The bottom line is that it usually makes the most sense to start these pensions only after you have substantially stopped working and your taxable income from employment has dropped." Factor in if you believe you will live a long life after retirement, it may be a good decision to delay taking your pensions. However, if you are no longer working because your health does not allow, you can consider taking CPP at age 60. It still pays for a lifetime in most cases. Then your employment income can reduce because you have a retirement income you can rely on permanently.

Working with a financial advisor will give you the knowledge and skills you need to answer these questions, while simultaneously working towards building your independent sources of retirement income in your RRSP, TFSA or non-registered accounts and investments or even passive income from rental properties.

Retirement is your permanent weekend. Enjoy and be prepared!


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