Recently, someone reading a financial profile asked “I’m single. I’ve had low paying jobs all my life, and what money I did earn went to raise my children so I have no savings. I don’t own a home. What will I do when I retire?” Here’s some information for people in this situation to start planning.
Start by looking at the Canada Revenue website to see what federal benefits you are entitled to get: http://www.servicecanada.gc.ca/eng/lifeevents/retirement.shtml
If you have lived in Canada for 40 years since you turned 18, and you are a citizen or legal resident, you are entitled to the full OAS when you turn 67. (If not, you may still be partially eligible, see http://www.servicecanada.gc.ca/eng/isp/pub/oas/oas.shtml#one )
As of December 2012, the maximum OAS monthly payment is $544.98.
UPDATE: As of March 2014, the maximum OAS monthly payment is $551.54.
So that is $6539 per year. (UPDATE: March 2014: $6618.48)
GIS is for people who receive the Old Age Security pension and who have little or no other income.
So if you have no CPP, no private pension, no income from working (you’re allowed $3500 per year), no income from renting out your home, and no income from investments, you may qualify for the maximum GIS payment.
If you do have income it reduces the GIS payment. If you are single and your income is $16,500, you don’t qualify for any GIS. UPDATE: As of March 2014 the maximum income is $16 728.
As of December 2012, the maximum GIS monthly payment is $738.96.
Update: As of March 2014, the maximum GIS monthly payment is $747.86 for a single, divorced or widowed person.
So that is $8867 per year. (UPDATE: March 2014: $8974.32.)
The maximum combined OAS and GIS together is $15,406. (UPDATE: March 2014: $16 728.)
You can figure out how much CPP you may get by registering and then asking the government for an estimate.
Providing you worked at jobs that contributed to CPP (not cash-only hidden jobs) you may get more than you think.
The maximum pensionable earnings for CPP in 2012 were $50,100. (For 2014: $52 500.) So people who have those really high paying jobs are not actually getting a lot more CPP than everyone else. They may get private pensions or be able to save more, but CPP is the same for everyone from about 52,500
50,000 per year and up.
If you were not working for some years because you were at home taking care of children age 6 and under, you can get the government to take those years out of your CPP calculations. That will increase the amount you are eligible to get. You have to ask them to do this when you apply, so you must remember to do it.
If you receive CPP, any GIS payments will be reduced. So you can’t add the maximum OAS, GIS and CPP to get an estimate of your income. You can add OAS and CPP though.
Invest Your Savings in your TFSA
Say you have a very low income and don’t expect to get a pension when you retire. If you can save money, you should save it in a TFSA. The interest or income that money earns will not be taxed, ever. Under the rules right now, money saved in a TFSA also will not change how much GIS you can get.
Do not save your money in an RRSP. When you take money out of your RRSP when you are retired, it is taxable income. That means when you take money out of your RRSP, your GIS payment will be reduced.
If your TFSA is full, you may want to save money in an RRSP as well. At that point, you should test some examples of how best to save your money. It may be better to save in an RRSP as well, or it may be better to save only outside of your RRSP. But since you can save (as of January 2 2013) 25500 in your TFSA, if you have more savings, that’s a good thing to have to worry about! And each year, you get $5000 or more in new room in your TFSA.
What to Invest in Within Your TFSA
If you only have a few thousand dollars, you probably should keep it totally safe. It’s hard to sleep if you think your money is going to disappear in a stock market crash.
Try to get the best interest rate you can if you keep your TFSA money in a daily interest savings account. (Check rates offered by Tangernie
ingdirect.ca, and People’s Trust among others.)
If you put your TFSA money into GICs, don’t buy without shopping around. Look for the best interest rates. Often there are incentives or deals to invest in December and January. Given that interest rates are incredibly low right now (in 2013) it is probably best to go with a short term of 1 or 2 years so you can re-invest if rates go up.
If you buy a GIC from a big bank like BMO, CIBC, Royal, ScotiaBank, or TD, you will get a better rate if you ask them for one. This is especially important when your GIC matures and is going to be re-invested for another term. They do not automatically give you the best rate. You have to phone and ask for it. Usually you can get .25 to .5% more by asking. So if the offered rate is 1% you can get 1.25% or 1.5% just be asking for it.
For more information on GICs, see also
- The 5-year GIC Ladder Strategy: No Longer a Scheme to Maximize GIC Returns
- Maximize GIC Returns by Carefully Considering the Annual Rates Before Locking In Long Term
- Beware of two ways the banks minimize your GIC earnings
Get Proper Financial Advice
I’m not a financial planner or a financial specialist. Tax law can change and pensions can change. Always check with a reliable source like Revenue Canada before deciding exactly what to do with your money.
Do you have ideas for how to best prepare for retirement with little or no savings? Please share your experiences with a comment.