How to retire to Canada in 2021- that will be the topic of today’s article.
Whilst nothing written here should be considered any form of advice, and the situation might change over time, my staff have done their best to ensure it is accurate.
It would also be wise to check out my article on investing for Canadian expats living overseas, as expat investing is my specialism.
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Very often people are worried about their retirement as it is much more lower in their country than in the US, or in Canada or in some EU countries.
The retirement years should be the most enjoyable. So how much money will it take to make this a reality? What is the pension in Canada in 2021? What makes up your retirement income in Canada? What is the retirement age?
Often, when people make plans for retirement, thoughts of fabulous sums come to mind. One way to think about retirement is from an income perspective. One of the most noticeable changes at the end of the period during which a person is actively working, retirement is the change of one check per month for several. That’s right, when you retire in Canada, chances are you will receive multiple checks.
So for those who want to retire to Canada, this blog post will be very useful. We will try to talk about all the points, fees and commissions, try to present you a step-by-step guide, so you could be aware of all the processes and future expenses, which will accordingly help you in your future decisions.
What is the retirement age in Canada in 2021?
Let’s start from the retirement age in Canada. In 2021, the retirement age is 65 for both men and women. Therefore, people who are 65 years of age or older and have lived in Canada for at least 10 years are eligible for Old Age Pension Benefit, about what we will talk below.
However, the situation may change soon, as experts urge the government to raise the retirement age in Canada to 67 years.
The usual age for receiving a pension in Canada is 65. However, it is possible to start receiving a pension between 60 and 70 years of age.
If you retired earlier, your CPP pension will be reduced by 0.6% every month until you turn 65. For example, if you started receiving your pension at 60, it will be 36% lower than the pension you would receive if you retired at 65.
If you retire later, this will increase your pension by 0.7% for each month worked after 65 years – up to 70 years of age. So, if you retire at 70, your pension will be 42% more than you would have received if you retired at 65.
For immigrants who have worked in Canada for less than 40 years, it makes sense to postpone receiving a pension until the age of 70, but only if you plan to leave for your country and want your pension to be as large as possible.
Canadian pension system
While living and working in Canada, you are under the care of one of the best retirement plans in the world.
Canadian pension system has three levels:
- Old Age Security (OAS) provides the first and entry-level retirement fund. If you meet certain resident requirements in Canada, then upon reaching 65 years of age, this will qualify you for a small monthly pension.
- The Canada Pension Plan (CPP) is the second level of the system. This plan provides you with a monthly retirement pension starting at age 60, provided that you made payments to this plan. The Canada Pension Plan also provides disability insurance, living alone and death insurance. Quebec has a similar plan called the Quebec Pension Plan.
- The third pillar of the retirement income system consists of individual retirement savings and employer pensions.
The first and second tiers of the Canadian retirement income system constitute the Canadian public pension system. Currently, these retirement forms are a significant part of the income of retirees. But public pensions cannot fully meet your financial needs in old age.
Many financial advisors claim that you will need approximately 70 percent of your current income (before taxes) to maintain your standard of living in old age. For example, if you are making $ 60,000 now, you should aim for a $ 42,000 income level in retirement. However, this is just a general rule.
Keep in mind that you will need to consider your personal circumstances in order to decide what level of income suits you.
More about Old Age Security (OAS)
The Old Age Security (OAS) is an old age pension. It is a program that is the cornerstone of Canada’s retirement income system. It includes a basic pension, which is given to almost all people aged 65 and over who have lived in Canada for a certain number of years. Old Age Security is Canada’s largest public retirement plan. Living in Canada already qualifies you for this pension.
Generally, to qualify for an OAS in Canada, you must be 65 years of age and must have lived here for at least 10 years after you turn 18.
OAS (Old Age Security program) was introduced in 1951 and was intended for 70-year-old retirees. In 1960, the age criteria were changed and the age required to receive these benefits was reduced to 65 years. Since then, life expectancy has increased by 5 years for men and 7 years for women.
The constantly increasing life expectancy, taking into account the increase in the number of retiring (baby-boomers), is becoming a financial burden for the state. In the 1970s, there was 1 pensioner for every 7 working people, in 20 years there will be only two working for 1 pensioner.
If the recipient has lived in Canada for at least 20 years after reaching the age of 18, the old-age pension is paid even if the recipient leaves Canada.
However, if a person has not lived in Canada for 20 years after his 18th birthday, and subsequently leaves Canada for more than 6 consecutive months, excluding the month in which he left, the payment of the old-age pension for any periods over 6 months of absence may be suspended. Payments resume the month the person returns to Canada.
What income can you expect?
The amount of OAS you receive depends on the number of years you have lived and worked in Canada since you turned 18.
Typically, you will receive a full pension if you have lived in Canada for at least 40 years after your eighteenth birthday. If you live less here, you may be eligible for a partial pension. With a partial pension, you will receive 1/40 of your full pension for each full year you have lived in Canada after you turn 18.
Depending on the number of years you have lived in Canada, you may receive a full or partial pension.
You will only receive the maximum pension if you have lived in Canada for 40 years. The current maximum pension is $ 615.37.
The amount of the partial pension depends on the number of years you have lived in Canada. For example, if you lived 10 years before you turned 65, then you will receive 10/40 of the maximum pension ($ 154.38), 14 years – 14/40 ($ 214.73), etc.
The amount of the pension is determined once and does not change again. The years that you lived in Canada after receiving your pension do not count.
However, the pension that a pensioner receives can be indexed depending on the subsistence level. Pensions are reviewed 4 times a year (January, April, July and October). If the cost of living has increased, then the pensioner will receive a little more. If the cost of living has decreased, then the pension will not change. The new government promises to develop a special index for pensions.
If a retired person has been in federal prison for two years or longer, they will not be paid an old-age pension until they give their release date in writing.
Pension registration in Canada
Documents for registration of Old Age Security pension can be submitted as early as 6 months before the onset of the 65th anniversary.
- Birth certificate (and notarized translation into English);
- Documents confirming citizenship and / or immigration documents (permanent resident card).
- A package of documents (HRDC Forms), including an application and attachments (for verification of personal and bank data).
Receiving a pension in another country
If a retiree has moved to another country, he can continue to receive an old-age pension, but only if he has lived in Canada for 20 years after he turns 18.
If he has lived in Canada for less than 20 years, then he will be paid a pension for the month he left and for the next six months. Payments will resume the month he returns to Canada.
If a retiree plans to leave Canada for more than 6 months, they must inform Service Canada.
If a pensioner began to receive a pension after he lived in Canada before receiving a pension from 10 years to 19 years, then if he lives for another 1 to 10 years (20 years in total), he will be able to receive a Canadian old-age pension in another country.
More about The Canada Pension Plan (CPP)
The Canada Pension Plan pays monthly pensions to people who have worked and paid CPP.
Participation in this plan starts at the age of 18. The normal pension is paid upon reaching the age of 65. Correspondingly adjusted benefits can also be received before and after age 65.
This plan works at the same time as an insurance plan, providing disability and survivor benefits.
The average wage for the entire length of service is indexed to the date of reaching the age of 65 in accordance with the increase in the average wage in the country. The 15% of the period of employment when wages were lowest are excluded, as are the years during which the disability benefit was paid and (if this results in an increase in the benefit) the years during which the contributor had children under 7 years of age.
Thus, after about 40 years, the maximum benefit is usually reached, equal to 25% of the average earnings during the period of employment.
In 2021, the maximum CPP pension is $ 1203.75 per month if payments start at age 65.
More about individual retirement savings and employer pensions (third option)
The third tier of Canada’s retirement income system consists of individual retirement savings and employer pensions.
Individual retirement accounts
Canada has a good Individual Retirement Saving Plan (RRSP). Under this program, you have the legal opportunity to reduce your taxes for a year, make a profit from this money and not be taxed. It is possible to use this money when buying a house or paying for training courses – that is, you can use it until retirement, when you need it.
Employer pension funds
These programs are funded by employers and, to a much lesser extent, trade unions and / or workers’ associations. Private companies, except when local and state governments fund voluntary retirement plans for their employees, operate them. About 40% of those employed in Canada participate in employer pension funds.
What makes up retirement income in Canada?
If you have devoted a long period of your life to working in Canada for one company, your pension will only be higher. Today, retirement benefits in Canada depend on whether you choose a defined benefit plan or a defined contribution plan.
Usually a better option is a defined benefit plan that will cover up to 70% of your pre-retirement income. The maximum benefits can be achieved by working for one company for 35 years, which is rare, since people change employers often, and not all jobs are ready to offer you retirement plans.
Registered Retirement Plan (RPP)
This is an individual Canadian retirement plan that is in addition to two government programs, CPP and OAS. With few employers offering retirement plans, RPP will be one of the largest sources of retirement income in the future. This plan is flexible. You can withdraw as many funds as you want, subject to the established minimum. Nevertheless, the profitability of this solution is individual, to get a complete picture it is worth consulting.
Investments outside of a registered retirement benefit plan provide the most flexibility. These include stocks, bonds, mutual funds, investment properties, and so on. For many, investing in retirement plans can make it difficult to acquire the listed investments.
Income from work
One of the growing trends is continuing to work after retirement in Canada. In the past, retirement meant stopping work, but today this is no longer the case. Some work for someone else, others prefer to work for themselves. Some work for money and some just to be busy, to keep in touch with people or for fun. Nevertheless, the key reason for working in retirement is desire, not necessity.
Smart planning has an impact
Before making sure you can retire in Canada, it is important to know what sources of income you will have at retirement age. Usually, it is worth starting by establishing the amount that your company-sponsored retirement plan (CCP and OAS) will provide.
Having figured out the main aspects of the retirement issue, you need to figure out how to supplement income with flexible solutions like a funded plan, personal assets or salary.
Sometimes it is difficult to decide which source of income to start with. The key to the solution is a well-crafted personal plan. It does not matter if you have just started your professional career or are already getting close to retirement, it is the understanding of the principles of building retirement income that will help lay the foundation for planning the future.
GUARANTEED INCOME SUPPLEMENT – (GIS)
Retirees may be eligible to receive a Guaranteed Pension Supplement (GIS), which is paid monthly to those Canadian residents who live in Canada and receive a full or partial old-age pension whose annual income (for spouses – total annual income) does not exceed the maximum.
You must apply to receive the Pension Supplement – after Service Canada determines that you are eligible for an Old Age Pension.
The amount of the supplement depends on 1) income and 2) whether you are married.
- To prove your income, you need to fill out a tax return or complete a supplement renewal application every year by April 30th, otherwise you will not receive it.
- If you get married, divorce, or if your spouse dies, you must fill out a special form (ISP1809OAS – Legal Marriage, Statutory Declaration; ISP1811OAS – Statutory Declaration – Separation of Legal Spouses and Common-Law Partners; ISP1201OAS – Notification of Death Form).
If you live separately from each other for reasons beyond your control (for example, one of the spouses is in a medical facility), then you have the right to receive a pension as a single person.
You need to submit a special application for this – ISP 3040 Statement – Spouses or common-law living apart for reasons beyond their control.
A single pensioner who has no income will receive $ 1,529.91 (retirement pension + supplement).
A married couple with no income will receive $ 1,168.65 each ($ 2,337.3 total).
If you earn income, then the guaranteed supplement decreases. The higher the income, the less the supplement. Once the income of a single pensioner reaches $ 18,600, then the supplement will not be paid.
For a family with two retirees, the maximum household income is $ 24,576.
The supplement is calculated based on the income for the previous year. If you were making good income before retirement but stopped working and you know you will have no future income, you can contact Service Canada and get a form called the Statement of Estimated Income after Retirement. Service Canada can recalculate your supplement based on estimated income.
If a person is in federal prison for two years or longer, they are not eligible for a pension supplement.
Note: A pension from your home country, even if you do not receive it in Canada, is income and must be reported on your tax return.
Getting a supplement in another country
Only retirees living in Canada are eligible to receive the supplement. If you leave Canada, the supplement will only be paid for 6 months, regardless of how many years you have lived in Canada. You can reapply after your return.
SUPPLEMENT FOR THE ELDERLY FROM THE GOVERNMENT OF BRITISH COLOMBIA
BC residents who receive an Old Age Pension (OAS) and Guaranteed Pension Supplement (GIS) may receive benefits from the British Columbia government the month after they begin receiving a Supplemental Pension. Supplement from British Columbia is charged automatically.
British Columbians will receive a provincial supplement for up to six months if they leave the province.
Provincial residents who receive spouse allowance can also receive a provincial supplement.
Additive amount per province
A single retired person will receive $ 50 a month, a spouse will receive $ 60.3 each ($ 120.60 total), and a person receiving a spouse benefit will receive $ 49.8.
To sum up
Although Canada accepts over 250,000 new immigrants annually, all immigrants must meet certain entry requirements. Immigration to Canada begins with the application for permanent resident status.
The four main categories of immigrants to Canada are: family members (close relatives of Canadian residents living in Canada), economic immigrants (Canadian experienced class, skilled workers and businesspersons), humanitarian and compassionate applicants (people accepted as immigrants for humanitarian or compassionate reasons) and refugees (people who avoid harassment, torture, or cruel and unusual punishment).
Therefore, to retire to Canada you have to meet at least one criteria to be eligible and apply as soon as possible, to not lose your time. Canada is definitely one of the best countries to retire, usually it will come with additive amount and your pension can be up to $ 1800, which is not bad.
We hope this was a quick and informative guide for you, which answered the questions such as what is waiting for you, how much your monthly income will be and much more. If you have any questions, you can ask below in comments.
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