Retirement » Retirement Income

Where will your retirement income come from?

Retirement is supposed to be the best years of your life. Most people think retirement planning is about saving enough for the future but as you get closer to retirement, an essential part of retirement planning is simply understanding where your income will come from.

Government benefits

The foundation of retirement income planning lies in government benefits. In Canada we some key government programs:

  1. Canada Pension Plan (CPP),
  2. Old Age Security (OAS),
  3. Guaranteed Income Supplement (GIS), and
  4. the spouses allowance

It is important that you understand how they work. The most you will receive from the government is $24,346.44 if you have no other sources of income and only $16,684.92 if you have other sources of income. Clawback and contribution rules may reduce these amounts. Don’t count solely on government benefits for your retirement!

Pension plans

A pension can be a very significant part of your retirement income if you stay with a company for a long period of time. Today, pension benefits will depend on whether you are part of a defined benefit pension plan or a defined contribution pension plan. The best pensions are usually defined benefit plans that replace a maximum of 70% of your pre-retirement income. Typically you have to stay with the company for 25 to 35 years. Today, it is rare to see maximum pension plan benefits because people are changing employers more frequently and fewer employers are offering pension plans as benefits.

Registered Retirement Savings Plans (RRSPs)

With fewer employers offering pensions, RRSPs will become one of the biggest sources of retirement income in the future. RRSPs provide a tremendous amount of flexibility. You can take out as much as you want subject to the government regulated minimum amounts. You can change income, investment options and tailor income to your specific needs. Good retirement planning will incorporate the best way to draw RRSPs for your income needs.

Non-RRSP investments

Investments outside the RRSP provide the most flexibility. Non-RRSP investments include stocks, bonds, GICs, mutual funds, investment real-estate, etc. The after-tax implications of non-RRSP investments are crucial to your total retirement income plans. For many people, contributing to CPP, Pension Plans and RRSPs will make it difficult to accumulate significant amount of non-RRSPs.

Income from work

One of the fastest growing trends in retirement planning is that more and more retirees are working in retirement. It used to be that retirement meant not working but now that’s not the case. Some work for others while others works for themselves. Some work for money while others work for other reasons like keeping busy, maintaining social relationships or just for fun. Whatever the case may be, the key to working in retirement is to do work because you want to and not because you have to.

Good planning makes all the difference

If you want to know if you can retire, it is essential to know which sources of income you will get in retirement. Typically, the best place to start is to find out how much money you will get from your company pension, Canada Pension Plan (CPP) and Old Age Security (OAS). Once you have that, you will need to figure out how to supplement your income with more flexible pots like RRSPs, non-RRSPs and income from work. Sometimes there can be debate over which source of income to start with. This is where a good financial plan can make all the difference. Whether you are just starting your career or whether you are already in retirement, understanding the retirement income pyramid will help you to build the foundation of planning for the future.


  1. Betty Hind

    I am currently 59 years of age,planning to retire in November 2014.Would like to know what I would recieve in CPP benefits at that time.Thank You,Betty

    • Doug

      You would have to contact Service Canada to obtain your CPP statement of contributions first. You can do so either online at: , or by calling 1-800-277-9914.

      Your CPP statement will give you an estimate of your CPP pension at age 60, but it won’t include your 2013 or 2014 earnings, and it won’t include child-rearing provision if you had any children.

      If you want a more accurate calculation (for a fee), you can always email me at [email protected], along with a copy of your CPP statement.

  2. Bobby

    Jim, I will be 64 in a few days…………

    If I start taking CPP and Old age before I turn 65, will CRA reduce my benefits because I am not 65 yet? By how much? I have been working for almost 43 years. Always lived in Canada and I am a Canadian Citizen. What is the maximum CPP and Old age if I start at 64? Should I wait till 65 to get the maximum?

    How do I apply?

    Thanks, Bobby

    • Doug Runchey

      Bobby – You can’t receive OAS until you’re 65 years old, and the monthly amount is $570.52. If you apply for your CPP at age 64, it will be approx. 7/2% less than if you wait until age 65.

  3. Ivan

    Hi, I need to retire at 62 to care for a parent who is ill as hiring caregivers (paying their tax, EI, CPP, sick leave, vacation plus wages) is more than what I can earn.

    I want to withdraw from my RRSP’s about $10,000 year to help cover expenses. Reading the early withdrawal tax info – the thing that’s not clear to me is:
    – do I have to be 65 to withdraw from my RRSP’s or
    – can I withdraw at anytime after I stop working?

    Do I get penalised with withdrawal tax? And also do I get taxed on the amount I withdraw or is the same thing? And are withdrawals from non-reg accounts counted as income? I live in Ontario.


  4. Dave

    Withdraw any amount when you want (working or not) BUT the amount of the withdrawal will be added to your income and taxed in the year it is withdrawn. Institutions are required to withhold a % of tax depending on the amount of the withdrawal. The amount withheld then becomes a credit when you file your Income tax just like when your employer deducted income tax and remitted it on your behalf. I believe the withheld tax is 10% on 5000 and 15 % on 10000 so if you want less tax withheld do 2 – 5000 withdrawals rather than one 10000 amount. Regardless however you’ll still pay the same amount at income tax time.

    …. you got a tax deduction when you put it in and it is taxed when you take it out.

    (If its a spousal RRSP I believe you must leave it in for 3 years before withdrawing it).

    • Dave

      Just checked … amount between 5000 and 15000 has 20% withheld. Over 15000 – 30%.

      Also be aware that when you withdraw it you do not create room to ever put it back in.

    • Diana

      To the lady retiring early to take care of an elderly parent. I found out too late for a lady that worked for me that I could have laid off my worker under and mark under the ROE – there is a code for compassionate care. My worker could have used that to take care of her mother.

  5. sonia saab

    I have 71 year old I am retired I have supplement for old age I leave in a condo their is 16 years wonder if the government have a program less expensive to paint my condo?

  6. shane hewitt

    Just wondering if I have worked about 30 years, and will want to retire, in 4 years at 60 what would I likely expect?

    thank you

    • Doug Runchey

      Hi Shane – If your salary exceeded the YMPE for each of those 30 years, your CPP at age 60 should be approx. 64% of 30/35ths of the maximum CPP retirement pension = approx. $622 monthly.

  7. Natasia

    If i retire at 60, and i am 58 now, do the last 2 yrs of contributions matter proportionately more? I am self employed and do not have want to pay mysekf a bug income just so that i can contribute to CPP,if its not necessary. No one (including the cra) can seem to tell me the exact definition of ‘eligible’ years for contributions.
    Is it 18-65, or 18- 60 if you retire at 60?

    • Doug Runchey

      Hi Natasia – If you take your CPP at age 60, your contributory years would be from age 18 to 60 (42 years) and you would count your best 35 years for your calculation (unless you also qualified for the child-rearing dropout). The final 2 years would have equal weight in the calculation to any other 2 years.

  8. Karen

    Why do they reduce the amount you get because you have saved, and gone without over the years? People who have saved nothing, are entitled to more; how is that fair?

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