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It may seem like a long way away (even if it’s not), but someday you’ll probably stop working. Here are some potential sources of income after you retire.
It may be many years before you will be ready to retire, however, it’s not a bad idea to start thinking about how people pay their bills once they are older and unable to work. For most of us who live paycheque to paycheque, it’s hard to imagine a time when we won’t be able to work to put food on the table. Here are a few common examples of income streams people receive once they retire:
CPP-Canadian Pension Plan
This is a government plan you have probably been paying into if you have a salaried position in Canada. You are allowed to start withdrawing it at age 60 but you may get a larger amount if you wait until you are 65 or older. The amount you withdraw depends on how many years you have paid into it and the amounts you have paid in.
Old Age Security
This is another government pension. Qualification for this money depends on how many years you have lived in Canada past the age of 18. It is funded through the general tax fund and it is income based, so if you make too much money you may not be approved.
DBP-Defined Benefit Pensions
These are work Pensions that you pay into by making a fixed contribution during your working years through your employer. You receive 70% of your average salary for the last 5 years of working. Provided you meet the years of service requirement (25-30). However, there are risks associated with this plan.
DBP-Defined Contribution Plan
This is a common work pension plan that you and your employer both contribute in to, but payouts are dependent on the markets and the way they perform over the years.
Registered accounts (RRSP/RRIF/LIRA/TFSA)
These are tax deductible (sheltered) accounts you should contribute into during your high earning years. They are locked into a time frame. You may be penalized for early withdrawals. Here is how to transfer a work account into a LIRA account.
These accounts are not tax-sheltered, however there may still be some advantages. See how to make non-taxable dividends.
If you’re experiencing a temporary cash crisis on the road to retirement and you need a quick and easy solution, contact us.