Pension Income Options for Planning Retirement Income

This can be a puzzle, especially when integrating several different pension income streams, for example perhaps an employer sponsored pension, Canada Pension Options, Old Age Security Options, avoiding OAS claw back, and planning income from personal investment plans including RRSPs and perhaps some Locked-In Retirement accounts and/or your self-employed business.

Employer Sponsored Pension Plans

An employer sponsored pension plan will be subject to maximum pension withdrawal limits and may be based on a Defined Contribution Plan (DCP) which provides income much like a personal RRSP. The amount of the pension income will depend on how much money is in the fund, the rate of investment return and the age of the retiree. It will also depend on the type of income stream you consider, for example a guaranteed annuity paid each year, or a flexible withdrawal based on the amount available in the fund in any given year.

Other employer pension plans are Defined Benefit Pension Plans (DBP). These types of plans are generally available to public service employees and the pension paid on retirement is based on the pension formula in the Defined Benefit Plan. This formula includes factors such as age, years of service and salary level while employed. Some DBP plans include several choices of survivor options for the spouse or beneficiaries. For example, a guaranteed benefit period of up to 15 years if the retiree dies within the guarantee period, payable to the beneficiary. Or a joint and last survivor pension of up to 100% of the retiree’s pension payable to the spouse for life, if the retiree pre-deceases the spouse.

Canada Pension Plan

CPP retirement income can be accessed as early as age 60 on a reduced basis (.6% for every month prior to age 65), can commence at age 65, or can be deferred to age 70 with payments increasing over the age 65 maximum (by .7% per month over age 65).

Old Age Security

OAS can be accessed at age 65 or deferred as late as age 70 and for every month deferred increases by .6% up to a maximum of 36%. You might consider deferring OAS if your annual pension income from other sources exceeds the taxable income level for OAS claw back, (currently $72,800 and over). For example, if your goal is to have higher spending levels prior to age 70 and you anticipate lower taxable income thereafter, you could consider deferring OAS – provided all the puzzle pieces fit together.

The Puzzle includes taking all of the sources of retirement income, considering the various options and strategies available within each component and fitting the pieces together within the framework of your goals and objectives. Goals and objectives include the required lifestyle expenses, income tax, discretionary spending and your desire to leave an inheritance for example, or to provide for your surviving spouse. Like any puzzle, this can take time and careful consideration of each how each piece adds to the total picture.