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READY TO RETIRE

READY TO RETIRE. PILLARS OF RETIREMENT. 1. Government Sponsored 2. Employer/Employee Pension Plan 3. Personal Savings. Government Sponsored. 1. Old Age Security – OAS 2. Benefits for Low Income Earners 3. Canada Pension Plan - CPP. Old Age Security. Sustainability

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READY TO RETIRE

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  1. READY TO RETIRE CALL Conference May 2009

  2. PILLARS OF RETIREMENT 1. Government Sponsored 2. Employer/Employee Pension Plan 3. Personal Savings CALL Conference May 2009

  3. Government Sponsored 1. Old Age Security – OAS 2. Benefits for Low Income Earners 3. Canada Pension Plan - CPP CALL Conference May 2009

  4. Old Age Security Sustainability • Financed from general tax revenues of the Government of Canada • OAS on solid ground – Actuarial Studies CALL Conference May 2009

  5. Old Age Security Benefits • Old Age Pension • Guaranteed Income Supplement • Allowance • Allowance for the Survivor CALL Conference May 2009

  6. Old Age Security Pension • Based on age, legal status, and years of residence in Canada • 2 types of pension – Full and Partial • Benefits are taxable • May be subject to OAS repayment of benefits CALL Conference May 2009

  7. Old Age Security Eligibility • Age – 65 years of age or more • Legal status and residence requirements • Canadian citizen; OR • A legal resident of Canada (on the day preceding the approval of the application OR on the day before the applicant stopped living in Canada) Must apply in writing CALL Conference May 2009

  8. Old Age Security Full Pension • Must have resided in Canada for at least 40 years after age 18 and before your application is approved; OR • Meet alternate residence requirements CALL Conference May 2009

  9. Old Age Security Partial Pension • If you do not qualify for full OAS pension • 1/40 of a full OAS pension for each full year of residence in Canada after the age of 18 • Minimum of 10 years required CALL Conference May 2009

  10. Old Age Security Portability To have the OAS pension paid outside of Canada, you must: • Have 20 years of residence in Canada after age 18; OR • Meet the 20 year residence through one of Canada’s International Agreements with another country CALL Conference May 2009

  11. Old Age Security Guaranteed Income Supplement – GIS MUST: Be in receipt of an OAS pension Reside in Canada Apply in writing CALL Conference May 2009

  12. Old Age Security Allowance Must be: Between the ages of 60 and 64 The spouse/common-law partner of a GIS recipient A Canadian citizen or a legal resident (same as OAS) A resident of Canada for at least 10 years after age 18 CALL Conference May 2009

  13. Old Age Security Allowance for the Survivor Must be: Between the ages of 60 and 64 A survivor A Canadian citizen or legal resident (same as OAS) A resident of Canada for at least 10 years after age 18 CALL Conference May 2009

  14. Canada Pension Plan CALL Conference May 2009

  15. Canada Pension Plan Background • Began January 1966 • Employment - based contributions • Self – supporting • Payable outside Canada • Reviewed and revised regularly • Quebec has a program with similar benefits (QPP) CALL Conference May 2009

  16. Canada Pension Plan Statement of Contributions: Sent periodically Call 1- 877-454-4051 CALL Conference May 2009

  17. Canada Pension Plan Maximum Contributory Earnings: (for 2009) $46,300 (Year’s Maximum Pensionable Earnings [YMPE]) - $3,500 (Year’s Basic Exemption [YBE]) = $42,800 EmployeeRate: 4.95% Amount: $2,118.60 EmployerRate: 4.95% Amount: $2,118.60 Self-Employed Rate: 9.9% Amount: $4,237.20 CALL Conference May 2009

  18. Canada Pension Plan Contributory Period Starts (later of): January 1966; OR Month after your 18th birthday Ends (first of): Month before pension starts; OR Month you reach age 70; When eligible for Disability benefits; OR Month of death CALL Conference May 2009

  19. Canada Pension Plan Drop out Provisions • Periods of CPP Disability • Periods over age 65 • Periods during which children were raised up to the age of 7 (Child Rearing) • 15% of the lowest earning years in the contributory period (calculated on remaining years) CALL Conference May 2009

  20. Canada Pension Plan January 1966 Year 2008Age 65 1968 - 1974 1982-1983 1977 - 1978 1985 - 1990 2 1 3 3 Contributory Period43 Years26 years after drop-outs (approximate only as calculation actually uses months) 1. Periods of disability (1985 to 1990) 6 Years 2. Raising children (1968 to 1974) 7 Years 3. 15% (43 - 17 = 26 years x 15%) 4 Years CALL Conference May 2009

  21. Canada Pension Plan Benefits • Retirement Pension • Disability benefit • Disabled contributor Child’s benefit Survivor Benefits Death Benefit Survivor’s benefit Surviving Child’s benefit CALL Conference May 2009

  22. Canada Pension Plan CPP – Retirement Pension May start receiving the Retirement Pension: • Between age 60 and 65 (if substantially ceased working) • Anytime after age 65 • Must have made at least one valid contribution CALL Conference May 2009

  23. Canada Pension Plan CPP – Retirement Pension Age 65 = “Basic” Paid the month after 65th birthday Age 60 – 65 = “Flexible” Amount decreased by 0.5% for each month under age 65 (to a max 30%) Age 65 – 70 = “Flexible” Amount increased by 0.5% for each month over age 65 (to a max 30%) CALL Conference May 2009

  24. Canada Pension Plan Substantially Ceased Working Cessation Test for Early Retirement • Earnings from employment must be below the max CPP Retirement pension • Only for the month before the Retirement pension starts AND for the month the pension starts being paid • Max $908.75 for each month (2009) CALL Conference May 2009

  25. Canada Pension Plan Sharing Retirement Pensions • Linked to cohabitation period • Split not necessarily at 50/50 • Total retirement pension(s) amount before and after the Assignment is the same • Two separate T4 slips issued CALL Conference May 2009

  26. Canada Pension Plan Credit Splitting • “Credits” may be divided upon divorce, legal annulment or separation of spouses or common-law partners • “Credits” may create eligibility OR increase/decrease entitlement to CPP benefits • Applicant’s ex-spouse/ex-partner is notified of the request in writing CALL Conference May 2009

  27. Canada Pension Plan Death Benefit • 6 times the deceased’s calculated Retirement pension to a max of $2,500 • Paid in full to estate, survivor or next-of-kin • Taxable • Must apply in writing CALL Conference May 2009

  28. Canada Pension Plan Survivor’s Benefit • Paid to the survivor of the deceased contributor (deceased contributor must have min qualifying period) • Survivor must meet the definition of “married” or “common-law” • Survivor must be over the age of 35, or have a dependent child, or be disabled • Benefit continues upon the change in marital status • Paid to Retirement pension recipients who also receive a survivor’s pension CALL Conference May 2009

  29. Canada Pension Plan Combined Retirement Pension and Survivor’s Benefit • Up to 12 months retroactive payments • Taxable • Must apply in writing • Max $908.75 (2009) CALL Conference May 2009

  30. Canada Pension Plan Child’s Benefit • Dependent Child of a deceased or CPP disability beneficiary • Max 2 benefits may be paid per child • Taxable • Must apply in writing • $213.99 (2009) CALL Conference May 2009

  31. Canada Pension Plan & OAS Contact Service Canada • 1 800 O-Canada (1 800 622-6232) • TDD/TTY: 1 800 926-9105 Pensions • 1 800 277-9914 (English) • 1 800 277-9915 (French) • TTD/TTY: 1 800 255-4786 • www.servicecanada.gc.ca CALL Conference May 2009

  32. Employer/Employee Pensions Defined Contribution (DC) • Capital Accumulation Plan (CAP) • Money Purchase Plan (MPP) Defined Benefit (DB) • Career Average Plan • Final Average Plan CALL Conference May 2009

  33. Defined Contribution Plan DC Plan • Employer and Employee contributions are tax deductible • Employer contributions are not taxable income to the employee • Investment income earned is tax sheltered until withdrawn CALL Conference May 2009

  34. Defined Contribution Plan DC Plan (cont) • Benefit at retirement is simply the account value • Employee assumes investment risk • Plan must be registered with the Provincial Government and Canada Revenue Agency • Employer must contribute a min of 1% • Total contributions cannot exceed 18% or $21,000 (for 2009) CALL Conference May 2009

  35. Defined Benefit Plan DB Plan • Promises a benefit at retirement that is DEFINED generally as a % of earnings • Employer assumes investment risk, OR • Employee and Employer share risks & rewards in jointly sponsored pension plans • Contribution rates may fluctuate based on long term investment returns • Income Tax Act sets the max benefit/year of service CALL Conference May 2009

  36. Defined Benefit Plan DB Plan – Career Average • Career Average plan is based on entire working career • Often no inflation protection unless ad hoc updates to the earnings base CALL Conference May 2009

  37. Defined Benefit Plan DB Plan – Final Average • Final Average pension plan calculation is based on the average of the highest (60) months earnings • Assuming earnings keep pace with inflation, Final Average plans provide some protection from inflation CALL Conference May 2009

  38. Defined contribution and Defined Benefit plans Pension Options • Most jurisdictions require spousal protection • Most pension options include a choice of a guaranteed period CALL Conference May 2009

  39. Personal Savings • Personal savings/investments • Registered Retirement Savings Plans (RRSP) • Tax Free Savings Account (TFSA) CALL Conference May 2009

  40. Personal Savings Investments • No limit to the amount you are permitted to save • Earnings are taxable when earned CALL Conference May 2009

  41. RRSPs • Contributions are tax sheltered to a max • Unused contributions can be carried forward into future tax years • Earnings are tax sheltered until withdrawn • Registered Pension Plan members have restrictions as to how much they can contribute CALL Conference May 2009

  42. Tax Free Savings Account • New as of January 2009 • Contribution max $5000 per year • Unused contributions can be carried forward into future tax years • No tax relief for contributions (same as with personal savings) • Earnings are never taxed • Min age 18 years • No limit variation for Register Pension Plan members CALL Conference May 2009

  43. General information • Canada Savings Bonds earnings are taxable unless held in a self-directed TFSA • While CPP is able to be shared with your partner, more recently Registered Pension payments can be split between partners • RRSP and Pension Plan contributions must cease by age 71, no age limit on TFSA CALL Conference May 2009

  44. Ready to Retire QUESTIONS? Jim Millard 250-592-9026 CALL Conference May 2009

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