Retirement work options
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Today, retirement doesn’t necessarily mean the end of your working life. In fact, Canadians are increasingly continuing to work after leaving their traditional place of employment.1 The potential financial benefits are substantial, and may allow you to enjoy a more comfortable lifestyle or leave a larger legacy for your loved ones.
If work will form part of your retirement, it’s important to analyze your choices and see how each option fits into your overall retirement plan.
What type of work do you want to do and for how long? You might want to stay with your current employer but scale back to part-time work for the first three years and then contract work for the next two.
The type of work you choose will affect the amount of income you receive and how often you receive it. How long you decide to continue working will affect when you’ll need to tap into your retirement savings and how much you’ll need.
At what age do you expect to retire? If you continue to work, any income you earn will be taxable. But if you are younger than 71, your earnings will generate Retirement Savings Plan (RSP) contribution room. If you are older than 71 but have a younger partner, you could direct contributions to a spousal RSP until the end of the year in which your partner turns 71.
What are your plans for excess earnings? A Tax-Free Savings Account (TFSA) is a flexible choice. With the TFSA, not only are investment earnings within the plan tax-free, but so are any withdrawals.
Beyond the TFSA, your earnings can be invested in your non-registered portfolio and drawn upon first when you do retire. This may help you to withdraw only the minimum required from your Retirement Income Fund (RIF), allowing the remainder of your investments to continue to grow, tax-deferred.
1 “More seniors at work.” Perspectives on Labour and Income. Vol. 5, No. 2. Statistics Canada. Feb 2004, and “Post-retirement employment.” Perspectives on Labour and Income. Vol. 6, no. 9. Statistics Canada. Sept. 2005. Accessed Aug. 26, 2008.
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