If you go through my old blog posts you’ll notice a few comments by readers stating that saving for retirement decreases the Guaranteed Income Supplement (GIS). The GIS is a benefit that is added to your Old Age Security pension. Its amount is determined according to your taxable family income in retirement.
If you use RRSPs or if you receive a pension under the Québec Pension Plan (QPP), those amounts are taxable, and you must declare them on your income tax return. The amount of the GIS is then calculated based on the income you declared.
Of course, the higher your income, the less you will receive. So, is it worth it to save for retirement if saving decreases your government benefit? Let me show you the advantages of saving for retirement.
Telling examples
Imagine Catherine, 35 years old, with an income of 25 000 $. She will retire at age 67 and will rely on the following sources of income from public plans:
| Source of income | If Catherine is single and her current salary is 25 000 $ | If Catherine is in a relationship and her current family income is 50 000 $ |
|---|---|---|
Pension under the Québec Pension Plan (QPP) (pension starting at age 67) |
6 962$ | 6 962 $ |
| Old Age Security (OAS) pension | 6 765 $ | 6 765 $ |
| Guaranteed Income Supplement (GIS) | 5 087 $ | 2 184 $ |
| Total : | 18 814 $ | 15 911 $ |
If Catherine is single in retirement, she will receive 18 814 $ a year from public plans (75% of her current salary). However, if Catherine has a spouse with the same salary, she will receive 15 911 $ and public plans will replace only 64% of her current salary.
Now, imagine Veronica, also age 35, with an income of 40 000 $. She will also retire at age 67 and will rely on the following sources of income from public plans:
| Source of income | If Veronica is single and her current salary is 40 000 $ | If Veronica is in a relationship and her current family income is 80 000 $ |
|---|---|---|
Pension under the Québec Pension Plan (QPP) (pension starting at age 67) |
11 140 $ | 11 140 $ |
| Old Age Security (OAS) pension | 6 765 $ | 6 765 $ |
| Guaranteed Income Supplement (GIS) | 2 998 $ | 89 $ |
| Total : | 20 903 $ | 17 994 $ |
If Veronica is single in retirement, she will receive 20 903 $ a year from public plans (52% of her current income). However, if she has a spouse who earns the same salary, she will receive 17 994 $ and the public plans will replace only 45% of her current salary.
Findings
We can draw three conclusions from the examples above:
- The higher your salary, the lower the percentage that public plans replace.
- If you are in a relationship, the amount of the GIS is considerably lower.
- The GIS was created to help people with low incomes.
Do the amounts paid by public plans seem sufficient to maintain your standard of living in retirement?
If not, you should start saving right away so that your savings can boost your available income in retirement.
Is it possible to save without decreasing the amount that you could receive from the GIS?
Yes. You could choose to invest in savings vehicles that don’t increase your taxable income when used. The most well known savings vehicle is the tax-free savings account (TFSA). A meeting with a financial planner could help you decide on the best savings vehicles for you.
One thing is for sure: for many of us, the amounts paid by public plans will not be sufficient to maintain our standard of living in retirement. When it comes to financial planning for retirement, you have very little control over life expectancy, interest rates and universal government benefits. However, setting aside a few dollars per week can help you safeguard your future.Post a Comment
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