Sources of Retirement Income in Canada

Let’s explore a number of income sources that Canadians can use to fund their retirement.

• A wide variety of income sources are available to Canadians during retirement, including government programs like CPP, OAS, and GIS, along with savings plans such as RRSPs, TFSAs, and employer pensions.

• Non-traditional income streams like rental properties, consulting work, peer-to-peer lending, and short-term home rentals offer additional ways to supplement retirement income and maintain an active lifestyle.

• Financial flexibility during retirement can also come from sources like downsizing, selling a secondary property, receiving an inheritance, or taking on a reverse mortgage. These options provide substantial income that can be used to address immediate expenses or to pursue long-term financial goals.

Planning for retirement in Canada involves exploring a wide variety of income sources to ensure financial stability and peace of mind. From government programs like the Canada Pension Plan (CPP) and Old Age Security (OAS) to private savings, part-time work, and alternative revenue streams, there are numerous ways to support your lifestyle after leaving the workforce. This article provides a comprehensive overview of these options, helping you understand how to diversify your income and create a personalized strategy to meet your retirement goals. Whether you’re seeking steady monthly payments or flexible lump sums, this guide highlights opportunities to make your retirement years both fulfilling and financially secure.

The table below categorizes a number of potential sources of retirement income into two categories: recurring and non-recurring.

Each of these income sources is explored in greater detail below. We encourage you to learn more about the ones you think could fit into your retirement plan.

Government Programs

Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)

CPP (or QPP if you live in Quebec) is a government-administered retirement benefit that provides income to Canadians who have contributed to the plan during their working years. Contributions are mandatory for most workers and are based on employment earnings. Upon retirement, eligible individuals can begin receiving monthly payments as early as age 60, although choosing to start earlier results in reduced benefits. The CPP is designed to replace a portion of pre-retirement earnings, and the exact amount you receive depends on factors like your contributions, your age at the time of starting benefits, and your work history. For retirees, the CPP serves as a reliable source of income that complements other retirement savings such as RRSPs or TFSAs.

To effectively use CPP income during retirement, it’s important to consider how it fits into your overall financial plan. Some retirees delay CPP payments until age 70 to take advantage of increased monthly benefits. The income can be allocated toward covering essential expenses like housing, utilities, and groceries, or it can be used to support discretionary spending, such as travel or leisure activities. Since CPP benefits are taxable, it’s essential to account for potential tax implications in your planning. By strategically integrating CPP into your budget, you can create a steady and sustainable financial foundation for your retirement years

Old Age Security Pension (OAS)

The OAS pension is a cornerstone of Canada’s retirement income system, providing financial support to eligible seniors aged 65 and older. Unlike the Canada Pension Plan (CPP), OAS is funded through general tax revenues, meaning recipients do not need to have contributed during their working years to qualify. The amount of OAS pension you receive depends on your years of residency in Canada after age 18, with full benefits available to those who have lived in the country for at least 40 years. For individuals with high incomes, the OAS benefit may be reduced through a recovery tax, commonly referred to as the “OAS clawback.”

OAS can be strategically incorporated into your retirement income plan to meet essential expenses or supplement other savings. You may choose to defer your OAS payments for up to five years to receive increased monthly benefits, providing a higher income later in retirement. As OAS benefits are taxable, careful planning is necessary to manage tax liabilities and optimize your overall income. Combined with other sources like CPP, non-registered investments, or private savings, OAS can help create a stable financial base to support your lifestyle and goals during retirement.

Guaranteed Income Supplement (GIS)

GIS is a financial benefit offered to low-income seniors in Canada who already receive the OAS pension. Designed to help retirees meet their basic needs, GIS is non-taxable and provides monthly payments based on an individual’s income level and marital status. Eligibility for GIS depends on your annual income, and you must apply to receive the benefit. The GIS program adjusts payments to ensure those with limited resources can maintain a minimal standard of living during their retirement years.

Retirees can use GIS to cover essential expenses, such as housing, groceries, and utilities. Since GIS is non-taxable, it provides a boost to disposable income without additional tax burdens. Incorporating GIS into a broader retirement income strategy can help low-income seniors stretch their savings and reduce financial stress. However, GIS payments are sensitive to changes in income, so retirees should carefully consider the impact of any additional earnings or financial resources on their eligibility. By planning wisely, GIS can serve as a critical component of financial stability during retirement.

Allowance for the Survivor

The Allowance for the Survivor is a financial benefit provided by the Canadian government to support individuals aged 60 to 64 who have lost their spouse or common-law partner and have not remarried or entered into a new partnership. This benefit is designed to assist low-income survivors in managing their financial needs during a challenging time. Eligibility for the Allowance for the Survivor is determined based on annual income, with payments adjusted to reflect the recipient’s financial situation. The program ensures that those who qualify receive monthly payments to help cover essential expenses, offering a measure of stability and security.

Incorporating the Allowance for the Survivor into a retirement income plan can be particularly beneficial for individuals facing financial hardship after the loss of a partner. The payments can be used to cover basic living costs, such as housing, utilities, and groceries, alleviating some of the financial stress associated with retirement. Since the benefit is non-taxable, recipients can maximize its impact on their overall budget. By carefully managing this income alongside other sources, such as OAS or GIS, survivors can create a more sustainable financial foundation during their retirement years.

Lump-Sum Government Benefits

There are a few circumstances in which the Canadian government will issue a lump sum payment. These are listed below, although it is recommended to not account for these for retirement planning. Rather, treat them as a bonus that will make retirement a little easier.

• Retroactive CPP, QPP, OAS, and GIS Payments: If you apply late for CPP, QPP, OAS, or GIS and you are eligible for these programs, you may receive up to 11 months of retroactive payments (or 12 for QPP). These retroactive payments are paid as a lump sum when your application is approved.
• Death Benefit (CPP): A one-time, taxable payment of up to $2,500 to the estate of a deceased CPP contributor.
• Special Government Relief Payments: Such payments are occasionally issued under specific circumstances (e.g., COVID-19 relief, inflation support). These are generally not recurring and they vary by province.

Employer Programs

Defined Benefit (DB) Pension Plans

DB pension plans guarantee retirees a specific income during their retirement for the rest of their life. The income is based on a formula that typically considers factors like salary, years of service, and age at retirement. Unlike Defined Contribution (DC) plans, the employer assumes the investment risk and is responsible for ensuring there are enough funds to meet the promised payouts.

During retirement, DB plans provide a steady and predictable income, often paid monthly, which can help retirees manage their financial needs. The amount you receive is predetermined, offering stability and reducing uncertainty about your retirement income.

DB plans are becoming increasingly rare in Canada, particularly in the private sector, due to the high costs and financial risks associated with maintaining them. They are most commonly offered to government employees and workers in public-sector roles, where such plans remain a cornerstone of retirement benefits. For other sectors, many employers have transitioned to Defined Contribution plans, leaving DB plans as a valuable but less accessible option.

Defined Contribution (DC) Pension Plans

DC pension plans are employer-sponsored retirement savings plans where both employees and employers contribute a set amount to the employee’s retirement account. Contributions are typically made on a pre-tax basis, allowing the funds to grow tax-deferred until retirement. Employees often have the flexibility to choose how their contributions are invested, with options like mutual funds, stocks, or bonds.

At retirement, the accumulated savings in a DC plan can be converted into income-generating vehicles such as a Registered Retirement Income Fund (RRIF) or an annuity. These options provide retirees with a steady stream of income, but the amount depends on the total contributions made and the performance of the investments over time. Unlike Defined Benefit plans, DC plans do not guarantee a specific income, so careful planning and investment management are essential to ensure financial stability during retirement.

Group Registered Retirement Savings Plans (RRSPs)

Group RRSPs are employer-sponsored savings plans designed to help employees prepare for retirement. Contributions to these plans are typically made through payroll deductions, which makes saving consistent and convenient. These contributions are tax-deductible, and the investments within the plan grow tax-deferred until withdrawal.

During retirement, the funds accumulated in a Group RRSP can be converted into income-generating vehicles such as a RRIF or an annuity. These options provide retirees with a steady stream of income to support their financial needs. However, withdrawals from these plans are subject to income tax, so careful planning is essential to manage tax implications and ensure the funds last throughout retirement.

Deferred Profit Sharing Plans (DPSPs)

DPSPs in Canada are employer-sponsored retirement plans that allow businesses to share profits with their employees. The employer contributes money to the plan. These contributions are tax-deductible for the company and tax-deferred for the employee until withdrawal. These plans can be a valuable addition to retirement planning, as they provide an opportunity to grow savings through investments in funds, stocks, or bonds.

DPSPs typically do not provide a steady income during retirement on their own. The funds within a DPSP grow tax-deferred, but upon withdrawal, they are treated as taxable income. Retirees often transfer DPSP funds to other retirement income vehicles, such as RRSPs or RRIFs, to manage their withdrawals and generate a consistent income stream.

One key feature of DPSPs is the vesting schedule, which determines when employees gain full ownership of the contributions made on their behalf. This can incentivize long-term employment with the company. However, DPSPs reduce the employee’s RRSP contribution room due to pension adjustments. Careful planning and understanding of the plan’s terms can help retirees maximize the benefits of DPSPs as part of their overall retirement strategy.

Working Beyond Retirement

Part-Time Employment

Taking on part-time employment during retirement can be a practical way to supplement your income while staying active and engaged. It allows retirees to ease financial pressures, cover unexpected expenses, or fund hobbies and travel. Additionally, part-time work can provide structure to your days and opportunities for social interaction, which can enhance mental and emotional well-being.

However, it’s important to consider the balance between work and leisure. Retirees should choose roles that align with their interests and physical capabilities to ensure the experience remains enjoyable. Additionally, earnings from part-time work may have tax implications or affect certain retirement benefits, so carefully considering your options for part-time employment is advised to ensure it fits within your retirement strategy.

Consulting or Gig Work

Consulting and gig work can be excellent ways to supplement income during retirement while staying active and engaged. Consulting allows retirees to leverage their professional expertise, offering advice or services to businesses or individuals in need. This can include areas like management, finance, marketing, or specialized industries, depending on your background. Gig work, on the other hand, offers flexibility and variety, with opportunities ranging from freelance writing and tutoring to pet care or rideshare driving.

Both options come with benefits and challenges. Retirees should consider the tax implications and how these activities might affect retirement benefits. Careful planning and choosing roles that align with your skills and interests can make consulting or gig work a rewarding part of your retirement strategy.

Rental Properties

A well-managed rental property can provide a steady cash flow to supplement other sources of retirement income. By choosing properties in areas with strong rental demand and paying off the mortgage before retirement, you can maximize your earnings while minimizing financial stress. Additionally, rental properties may appreciate in value over time, offering a potential hedge against inflation and an opportunity to pass on wealth to future generations.

However, it’s important to consider the challenges of managing rental properties during retirement. Maintenance, tenant issues, and unexpected expenses can be time-consuming and demanding. For those looking for a hands-off approach, hiring a property management company may be a good option. Additionally, rental income is taxable, and it may affect eligibility for government benefits such as OAS. With careful financial planning and an understanding of the risks, rental properties can be a viable strategy for achieving financial security in retirement.

Short-Term Home Rental

Managing a property for short-term rentals can become increasingly challenging as you age. Tasks like cleaning, performing maintenance, and preparing the home for guests may become physically demanding, particularly if mobility or strength declines over time. Coordinating bookings and responding to guest inquiries can also be stressful and time-consuming, especially if you’re navigating unfamiliar technology or dealing with emergencies that require prompt attention.

Additionally, managing a rental property involves staying up-to-date with local regulations, tax requirements, and insurance policies, which can become more difficult to track as these rules change. If you face health challenges or simply want to enjoy retirement without the added stress of hosting, these demands may outweigh the financial benefits of short-term rentals. To lighten the load, you could hire a property manager, but it’s essential to factor in the cost of their services and evaluate whether this arrangement aligns with your overall retirement goals.

Peer-to-Peer Lending

P2P lending is an uncommon but viable way to generate semi-passive income during retirement. P2P lending is a system where investors lend money directly to individuals or businesses, bypassing traditional institutions like banks and credit unions. Investors earn returns through interest payments, while borrowers can benefit from more favourable terms on the loan.

One appealing aspect of P2P lending is its potential for higher returns compared to more conventional options like savings accounts or bonds. Borrowers typically make monthly payments that include both principal and interest, which can help cover retirement expenses. However, this investment carries risks, including the possibility of borrower defaults, which could impact overall earnings.

For retirees considering P2P lending, it’s essential to evaluate risk tolerance and diversify investments to minimize potential losses. Some platforms in Canada, like goPeer, provide options for government-approved P2P lending. With proper research and careful planning, this method can serve as a supplemental income source during retirement.

Personal Savings and Investments

Registered Retirement Income Fund (RRIF) Withdrawals

Withdrawing cash from your RRIF is a common way for Canadians to generate income during retirement. Once you convert your RRSP into a RRIF, you are required to withdraw a minimum amount each year, starting the year after the RRIF is established. The minimum withdrawal amount is calculated based on your age and the value of the RRIF at the beginning of the year. These withdrawals are taxable as income, so it’s important to plan accordingly to manage your tax liability.

RRIFs offer flexibility in how you manage your investments and withdrawals, allowing you to tailor your income to your retirement needs. However, as you age, the required minimum withdrawal percentage increases, which could deplete your savings faster if not carefully managed. It’s important to carefully plan withdrawals from your RRIF to ensure they align with your long-term financial goals.

Tax-Free Savings Account (TFSA) Withdrawals

TFSAs are a flexible and tax-efficient option for generating income during retirement in Canada. Withdrawals from a TFSA are not taxed, making them an attractive choice for retirees who want to access funds without increasing their taxable income. This feature is particularly beneficial for avoiding higher tax brackets or clawbacks on government benefits like Old Age Security. Furthermore, investments stored in TFSAs are allowed to grow tax-free, making them an excellent vehicle to store medium and long term investments during retirement.

Non-Registered Account Earnings

Income from non-registered accounts can play a significant role in retirement planning. These accounts, unlike registered ones such as RRSPs or TFSAs, do not offer tax advantages, but they provide flexibility in terms of contributions and withdrawals. Retirees can use non-registered accounts to invest in a variety of assets, such as stocks, bonds, mutual funds, or real estate investment trusts (REITs), generating income through dividends, interest, or capital gains. This income can be used to cover living expenses, fund leisure activities, or supplement other retirement income sources.

One key advantage of non-registered accounts is that they allow retirees to access their funds without restrictions on withdrawal amounts or timing. However, it’s important to note that income from these accounts is taxable, and the tax rate depends on the type of income earned. For example, capital gains are taxed at a lower rate than interest income. Proper financial planning can help retirees optimize their withdrawals and minimize tax liabilities, ensuring a steady and reliable income stream throughout their retirement years.

Interest from Savings Accounts

Interest from savings accounts can provide a reliable and low-risk source of income during retirement. While the returns may be modest, savings accounts can offer stability and easy access to funds, making them ideal for covering certain expenses or unexpected costs. This approach is particularly useful for retirees seeking to preserve their principal while generating supplemental income. Note: if you have significant cash in a savings account with no plans to use it in the future, consider converting a portion of that cash into investments that can grow over time.

Annuities

Annuities are a financial tool designed to provide a steady income during retirement. They involve paying an insurance company a lump sum in exchange for guaranteed income over a specified period or for the remainder of your life. This steady flow of payments can help retirees manage financial stability and address long-term needs.

There are several types of annuities, including life annuities, which last as long as you live, and term-certain annuities, which have payouts for a fixed duration. You can also opt for immediate payments starting shortly after purchase or defer them to a later date. While annuities offer reliable income, it’s important to account for costs, inflation adjustments, and the conditions set by the provider to ensure they fit your retirement strategy.

Debt Sources

Reverse Mortgages

A reverse mortgage is a financial arrangement where a homeowner exchanges equity in their home for cash, typically to supplement retirement income. Unlike traditional loans, reverse mortgages do not require regular monthly payments. Instead, the loan balance increases over time and becomes due when the borrower passes away, sells the property, or permanently moves out. In such cases, the outstanding balance must be repaid.

Homeowners can choose how to receive funds from a reverse mortgage, such as regular payments, a one-time lump sum, or a combination of both. For example, part of the amount can be taken as a lump sum, with the rest distributed through ongoing payments.

While reverse mortgages might seem appealing as a way to use your home’s value for retirement income, it’s crucial to consider the tradeoffs. The primary drawback is the potential to accumulate debt rapidly due to high interest rates and fees, which can reduce the inheritance left to heirs. This may be problematic depending on your financial goals. Careful consideration and planning are essential to determine if a reverse mortgage aligns with your long-term needs and priorities.

Home Equity Line of Credit (HELOC)

A HELOC allows you to borrow against the equity in your home. HELOCs can be a useful tool during retirement. However, it’s essential to understand the risks before getting one. HELOCs are best suited for providing short-term supplemental income. For example, a HELOC could be used to cover an unexpected expense that arises during retirement. Borrowing through a HELOC can be a more cost-effective option than selling securities from a retirement account during a market downturn, provided you can manage the interest payments. Since HELOCs typically have variable interest rates, the amount you owe in interest can fluctuate. If you’re unable to make payments, the bank may foreclose on your home, making it vital to weigh these risks carefully. For long-term financial needs, you might consider a reverse mortgage, specifically designed to provide steady income during retirement.

Other Sources

Sell Your Home

Downsizing during retirement can be a practical way to address financial needs while simplifying your lifestyle. By selling a larger home and moving to a smaller, more affordable property, retirees can unlock home equity to supplement their retirement savings. This approach often reduces living expenses, such as utility bills, property taxes, and maintenance costs, freeing up funds for other priorities.

However, downsizing comes with considerations. The process of selling your home and moving can involve significant costs, including real estate fees, moving expenses, and potential renovations to prepare the property for sale. Emotional attachment to your current home and adjusting to a smaller space can also be challenging. Careful planning can help ensure that downsizing aligns with your financial goals and retirement lifestyle.

Sell Your Secondary Property

Selling a secondary property during retirement can provide a significant financial boost, but it requires careful consideration. One key factor is the potential tax implications, such as capital gains taxes, which can reduce the net proceeds from the sale. Additionally, market conditions play a crucial role in determining the property’s value, so timing the sale strategically is important. If you were renting the property, it is also essential to evaluate how the loss of rental income, as well as the property’s future appreciation might impact your retirement plan. Consulting with a financial advisor or tax professional can help you navigate these complexities and ensure the decision aligns with your retirement goals.

Sell Your Business

Selling a business can be a powerful way to fund your retirement and transition into a new phase of life. The proceeds from the sale can provide a substantial financial cushion, allowing you to invest in retirement accounts, diversify your portfolio, or cover living expenses. This approach can be particularly beneficial if your business has grown significantly in value over the years, maximizing the return on your hard work.

However, selling a business requires careful planning. Factors like determining the market value, finding the right buyer, and navigating tax implications are crucial to ensuring a successful sale. Additionally, emotional considerations, such as letting go of a business you’ve built, can play a significant role in the process. Working with financial advisors, business brokers, and legal professionals can help you structure the sale effectively and align it with your retirement goals.

Sell Your Collectibles or Niche Assets

Selling collectibles or niche assets can provide a unique source of income during retirement. Items like artwork, antiques, coins, wine, sports cards, watches, domain names, or other assets may have appreciated in value over time, offering the potential for significant returns. However, the worth of these items is often influenced by factors like their condition, rarity, and current market interest. A notable challenge is the time and effort it may take to find interested buyers willing to offer a fair price. Additionally, the value of collectibles can vary based on trends and demand, leading to unpredictability. You should also account for taxes and any fees that might apply when selling such items. Consulting appraisers or industry specialists can help ensure you’re making informed decisions and maximizing the financial benefits to support your retirement goals.

Inheritances

While inheritances can provide financial support during retirement, relying on them as a main source of income is uncertain and potentially risky. The amount and timing of an inheritance are often unpredictable, as they depend on various factors like the benefactor’s financial situation, health, and unforeseen expenses. Additionally, estate plans can change, which may affect the funds you ultimately receive.

Rather than depending on an inheritance, it’s more reliable to focus on creating a comprehensive retirement plan that includes diversified savings and income sources. Any inheritance you receive can then be treated as a bonus, offering extra financial flexibility or covering unexpected costs.

Insurance Payouts

Insurance payouts can serve as a helpful source of income during retirement, depending on the type of policy you hold. For example, life insurance policies with a cash value component, such as whole or universal life insurance, allow you to access funds through loans or withdrawals. These payouts can provide supplemental income, often with tax advantages, as long as the amount withdrawn doesn’t exceed the premiums paid.

Additionally, some policies offer riders for long-term care, enabling you to use the death benefit to cover medical or caregiving expenses. However, it’s important to carefully evaluate the terms of your policy, as accessing funds may reduce the death benefit for your beneficiaries. Consulting a financial advisor can help you determine how to best incorporate insurance payouts into your retirement strategy.

Royalties and Intellectual Property

Earnings from royalties or intellectual property can provide a tremendous boost to your income during retirement. Whether it’s from creative works like books or music, patented inventions, or trademarks, these payments often offer a dependable source of passive income. As long as the intellectual property remains valuable or widely used, you may continue to benefit financially throughout your retirement.

Lawsuit Settlements

Receiving money from a lawsuit settlement can significantly impact your finances. However, the outcome of a lawsuit is unpredictable, making it risky to assume you will win and receive any income. Moreover, losing the case could leave you liable for payments. Therefore, potential earnings from lawsuit settlements should not be factored into retirement planning.

Allowances and Cash Gifts

It’s uncommon for people nearing retirement age to receive allowances or cash gifts from friends and family, though it does happen. This is often the case when aging parents rely on their children for financial support, with help provided through regular or semi-regular cash gifts.

Ideally, allowances and cash gifts should not be relied upon for retirement planning. While family or friends might be willing to assist financially during retirement, their changing circumstances can make long-term support unlikely or impossible. For example, a child who can give financial aid today might require assistance themselves in the future. To ensure financial independence, it’s best to plan your retirement without relying on monetary support from family or friends.

Lottery and Gambling Winnings

Winning a national or regional lottery can dramatically transform your financial situation. However, since it’s impossible to predict if this dream will ever come true, lottery winnings should not be factored into your retirement planning. The same applies to other gambling sources, such as casinos and sports betting apps.

Tax Refunds

The Canada Revenue Agency (CRA) issues tax refunds when your credits exceed the amount of tax owed for a given tax year. However, predicting whether you’ll receive a refund in advance is challenging, as it depends on numerous external factors that are hard to anticipate. As such, tax refunds should not be incorporated into retirement planning. Instead, they should be viewed as a bonus, useful for covering minor expenses or unforeseen needs.

Summary

Retirement is a journey that requires careful financial planning and a proactive approach to securing diverse sources of income. From government benefits to creative ventures and investment opportunities, retirees in Canada have access to a broad spectrum of options to sustain their desired lifestyle. By understanding and leveraging these income streams, retirees can enjoy greater financial stability, adapt to changing circumstances, and focus on what truly matters—making the most of their retirement years and living with peace of mind.