According to the Institut de la statistique du Québec, the employment rate among 65-year-olds and older has increased by 66% over 10 years. This means more than 10% of those in this age bracket are collecting various forms of employment income. This additional influx of money can impact your finances. Here’s everything you need to know before you start working after retirement.
There are many reasons why you may want to look for work after you’ve retired: to have more money, to keep physically and mentally fit, to take on new challenges, or even to maintain an active social life. But it’s important to calculate the costs that could result from deciding to do this.
Before applying for a job
As you work on a strategy to increase your income upon retirement, get a realistic and complete assessment of your situation. Here are 5 things to consider:
1. Optimization strategies for your savings
If the only reason you want to work after retirement is because you need more money, think about maximizing your current retirement income before looking for a job – for example, you could delay your government pensions or look into splitting your income with your spouse. You’ll minimize the effects on your taxes, benefit from various optimization strategies for your savings, and enjoy a more comfortable retirement.
To get the most out of your financial resources and benefit from them for as long as possible, you can also review the rate at which you withdraw from your savings.
2. Your tax bracket
Additional income post-retirement could change your tax bracket, which would affect your overall income. Make sure to take a look at the effects of this influx of money on your total income after taxes.
Your accountant can draw up a few scenarios to help you assess the consequences and make the right decision.
3. Your contributions to the Québec Pension Plan
If you’re already collecting from your Québec Pension Plan, you are given an exemption for the first $3,500 you make in additional employment income. If you end up making more than that though, you’ll have to start contributing to the pension plan again. On the plus side, these additional contributions will increase your pension total and this extra money will be automatically added to your pension for the rest of your life.
If you decide to work after retirement, you may not need the income from your Québec Pension Plan anymore. Why not put it towards your RRSP? However, it’s important to note that after the age of 71, you can no longer contribute to your RRSP. If that’s your case, you can move the money into a TFSA, a non-registered investment account or even a savings account.
You can also ask Retraite Québec to stop paying out your pension. As a result, the next time you apply for your pension, your benefits will be higher. You have a maximum of 6 months after your first pension payment to submit this request.
4. Retirement age
If you haven’t started receiving your pension yet, you can delay your retirement in order to receive better pension benefits. This may be better than retiring from your job, then looking for another and having to declare an additional influx of money.
The government designed this system in order to address issues with labour shortage and encourage people to push their retirement back. If you wait until you’re 70 to retire, your pension may even double.
5. Other possible sources of income
You may have access to other sources of income that are more profitable than going back to work. Do you have any taxable assets like a chalet or rental property that you could sell? You could follow a progressive withdrawal strategy and turn such a sale into recurring revenue.
Making sense of your RRSP, your RRIF and your TFSA
You can contribute to your RRSP until you reach the age of 71. Then, on December 31 of the year you turn 71, you must transfer your RRSP to an RRIF in order to collect retirement income.
On the other hand, TFSAs have many advantages since they don’t have any age limits when it comes to contributions. If you cannot contribute to your RRSP anymore, then a TFSA may be an ideal solution. In fact, if you have a lot of savings in your RRIF, you can transfer your RRIF to a TFSA and take advantage of its tax benefits.
A job that fits into your schedule
If you do decide to go back to work, look for something that fits into your schedule and lifestyle. The current labour shortages in various sectors could encourage many employers to welcome you to their team.
If you want to go back to work to stay active rather than to make additional income, consider volunteering with various organizations in your community.
An enjoyable and profitable retirement
As is the case in all areas of personal finance, the best strategy is always to properly plan and clearly define your goals. Going back to work can have many ramifications and discussing it with your advisor is crucial. They will help you make the right decisions so you can enjoy life while minimizing the effects on your finances.
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