The reader Jean asks himself interesting questions, these allow us to revisit certain principles of disbursement. It will change us a little from the elections.
The 63-year-old retiree has been pocketing his Quebec Pension Plan (QPP) benefit for three years, “the maximum”, he specifies. He separated her with her spouse. The latter has contributed very little to the regime, it derives almost nothing from it.
In addition, our reader receives around $56,000 a year from two non-indexed defined benefit pension funds. He also contributed to his wife’s RRSP over the years, the account now contains $144,000. The couple also has $42,000 in TFSAs.
Both spouses will be eligible for the Old Age Security pension in two years.
Questions from our reader:
“If we both delay our first pension payments until age 70, is it true that no pension will be paid to the survivor in the event of death? »
“If so, isn’t it a significant risk to leave money on the table?” »
“With my income, might I get dangerously close to the limit where I have to reimburse part of my PSV? »
Let’s go in order.
Manage risks
No, the Old Age Security program does not provide a pension to the surviving spouse, except for an allowance if the hypothetical beneficiary is between 60 and 64 years old and his income does not exceed a certain threshold.
“Premature death is a risk to consider, but it’s probably not the worst part of the situation. The risk of survival is undoubtedly greater,” recalls financial planner Martin Dupras.
The adviser notes that our reader’s pension funds offer no protection once morest the rising cost of living, so the couple’s purchasing power will be eroded over time. Even at normal levels, inflation can wreak havoc over 20 years.
The PSV, on the other hand, is indexed to the cost of living four times a year. By deferring it to age 70 as our reader envisages, the pension will be increased by 36%. At age 75, it will be increased by another 10%.
“With the deferral, a larger portion of the couple’s overall income will be indexed,” says the independent planner.
The shortfall between the ages of 65 and 70 can be partly offset by RRSP withdrawals, according to Martin Dupras. For the rest, the couple’s lifestyle will be financed by various annuities. The strategy should be avoided if the state of health raises fears of early death.
This kind of decision would be easy to decide if we knew the date of the “great departure”. In the absence of such certainty, one must weigh these two risks: leaving money on the table in the event of premature death; tightening your belt later if you live to a ripe old age.
Income splitting
As for the worry of seeing part of his pension amputated by excessive income, Jean can sleep on his ears. The PSV clawback threshold is currently approaching $80,000, a limit that is indexed each year.
Our reader doesn’t come close, especially since he can split the income from his two employer pension plans with his spouse. This possibility is available to him now vis-à-vis the federal tax authorities, and from the age of 65 with respect to Quebec tax.
Splitting allows the income to be divided equally between the spouses in order to reduce the tax bill.
Unless there are health problems, the strategy to adopt seems quite clear. If the fear of leaving it on the table harms their sleep, retirees can cut the pear in half by postponing pensions to 68, the pension will be improved by 21.6% instead of 36%.