Working Retirees

Q.1. What type of work could I get?

According to Statistics Canada about one in every six people in the retired age bracket of 60 to 64 return to the paid workforce in some capacity. This usually involves working part-time, consulting or opening a business. Often this business relates to a lifelong interest or hobby for which there was not sufficient time while working full time.

Q.2. What should I do with the additional income to help my retirement finances?

This additional income gives you an opportunity to add to or protect your retirement nest egg. You can contribute to a Tax Free Savings Account and or to your own RRSP until the age of 71 or to your spouse’s TFSA or RRSP until he or she turns 71. This will help to shelter the income until such time as you are no longer working and would likely have a lower taxable income. With the additional income you may be able to avoid converting RRSP money until later. You also may be able to use these additional funds to pay for daily living expenses and therefore, only make minimal withdrawals from your RRIF which would allow those funds to continue to grow. You could also take advantage of the Tax Free Savings Accounts.

Q.3. What is income splitting and how would this help me?

Income splitting is a way of sharing income between yourself and your spouse to help reduce the tax burden. This can be done in a number of ways. For example, there is the possibility of pension income splitting where you may be able to split your eligible pension income if you meet the requirements. If you have started your own business, and your spouse assists in that business in some capacity, you could pay your spouse a salary commensurate with that role. You would normally do this if your spouse is in a lower tax bracket and this would reduce the amount of tax paid on that income. It may also help create additional RRSP contribution space for your spouse.

Q.4. What should I be concerned about if I earn extra income?

The down side of earning additional income is that it may affect your eligibility for income-linked government benefits like Old Age Security (OAS) as OAS benefits are reduced or even eliminated based on income. You, of course, will also pay taxes on this earned income and it may affect your marginal tax rate.