Serious Money Discussion So You Want to Retire eh?- Part 2 The Income Side of Retirement

by: Jeffery A. Keill, CFP, CIM, FMA,FCSI, CEA Portfolio Manager and Senior Wealth Advisor

Introduction

As I wrote in Part 1 of this 2-part paper- many things have changed over the years, but some things remain the same. We all still want to buy a home, educate our children, pay off debt, and retire comfortably. The concept of retirement is a fact of converting our cashflow from ‘man at work’ to ‘money at work’. For many this change is a change in their identity, their daily activities, and income sources. These changes including the new source of income, can be very daunting and scary. In Part 1 we talked about the Expense side of the ELE Process. In Part 2 we will look at the income side of the ELE retirement process to help bring some clarity to retirement income.

The ability to retire is simply finding the equation where your expenses must be equalized to at least the level of your available income. Like I mentioned in Part 1, we need to match what is coming in for what is going out.

The K&A ELE Planning Process:

ELE is a an acronym that Keill & Associates uses to describe the retirement planning process in a simple way to conceptualize retirement cashflow planning. The acronym ELE stands for Essentials, Lifestyle, and Estate. These three items are the expense side of financial retirement. What you need to survive, what you need to thrive, and what you will pass along to the next generation in Estate Transfer. On the income side of the equation-what you will have coming in-also comprises of three distinct parts: Government Pensions, Private Pensions, and Personal Pensions or Savings. Let’s talk about these three Income Side items.

1. Government Pension Programs

The Canadian government offers several foundational pension programs designed to provide basic retirement income security. These programs are typically indexed to inflation and are essential pillars of retirement planning.

These programs are to create a base income for Canadians and has never been expected to be the sole source of retirement funds. When taken together they can be significant on their own to meet basic Essential needs but allow very little above that level. Canadians would do well not to plan their retirement solely on these government programs.

• Canadian Pension Plan (CPP) The CPP is a contributory, earnings-related insurance program. Canadians who have contributed to the CPP during their working years are eligible to receive monthly benefits starting as early as age 60, though the standard age is 65. The amount received depends on the individual’s contribution history and the age at which benefits begin. CPP benefits are taxable income and can be split with a spouse or common-law partner for tax purposes through a system of credit splitting. Unlike other income splitting methods, this is a split that happens at the source and not each year on the tax return. As this is a contributory pension (you needed to participate in contributions during your working years) it is not income tested. The amount of the payment is based on how much you made during your employment years and therefore the level of contribution.

  
  

• Old Age Security (OAS) The OAS is a universal pension available to the vast majority of Canadians aged 65 and older who have resided in Canada for at least 10 years after the age of 18. As this is a non-contributory pension that is paid from general federal tax revenues and is meant as a basic social retirement income safety net; therefore, it can be subjected to certain income testing. The benefit amount is subject to a ‘claw-back” for higher-income retirees through the OAS Recovery Tax. Like CPP, OAS payments are taxable.

• Guaranteed Income Supplement (GIS) The GIS provided additional, non-taxable income to low income OAS recipients. Eligibility and benefit amounts are determined based on annual income, and the GIS can significantly enhance retirement income for those with limited personal savings. Generally if your retirement income is restricted to only CPP and OAS, having no taxable income from private pensions or personal sources, you generally would qualify for this additional social safety net income.

2. Private Pensions

   
   

Many Canadian workers participate in employer- sponsored pension plans, which provide a valuable supplement to government benefits. Many private pensions provide the bulk of many former employee retirement plans. An individual would have had to work at an employer where having a private pension plan was part of their compensation structure. The private pension plans are generally one of two specific types: Defined Benefit Pension Plan or a Defined Contribution Pension Plan. Which one you may have -or had- depends on if you know if the end benefit is known or if the contributions going in are unknown.

• Defined Benefit Pension Plans (DBPPs) DBPPs promise a predetermined monthly benefit in retirement, typically calculated based on years of pensionable service and on a variation of "average salary”. These plans offer predictability but are increasingly rare in the private sector, though common in public sector employment. Their shine has come off in recent years as employers tend to prefer the Defined Contributions or other arrangements as the costs and risks of these alternative plans is lower. DBPPs are taxable upon withdrawal.

• Defined Contribution Pension Plans (DCPPs) DCPPs involve contributions from both the employee and employer into an individual account. These plans are also commonly called Money Purchased Pension Plans. The eventual retirement income depends on the account’s investment performance. At retirement, funds are typically transferred into a locked-In-Retirement Income Fund (LRIF) or a life annuity, and withdrawals are taxable.

3. Personal Pensions or Savings

Personal and investments play a significant role in supplementing government and employer pensions. For those who have not built retirement savings in a private pension plan, they become a major part of retirees income plans. There are several different structures and arrangements Canadians can utilize such as registered and non-registered accounts, rental income, and annuities.

• Registered Retirement Savings Plans (RRSP) A RRSP allows individuals to contribute pre-tax income, with investment growth tax-deferred until withdrawal. At retirement, RRSPs are typically converted into Registered Retirement Income Fund (RIFF), from which mandatory minimum withdrawals are made annually and taxed as income.

  
  

• Tax-Free Savings Account (TFSA) TFSAs allow Canadians to save and invest with after-tax dollars, and all investment growth and withdrawals are tax-free. TFSAs are flexible and can be used for both short- and long-term savings goals, including retirement income supplementation.

  
  

• Non-Registered Investment Accounts These accounts have no contribution limits or special tax advantages but offer flexibility. Income from these accounts, such as dividends, interest, or capital gains, are subject to taxation based on the type of income and the retiree’s marginal tax rate.

• Rental Income Owning rental property can provide a steady stream of income in retirement but it does come with some effort. Net rental income is taxable, as does most investment incomes, but allowable expenses (such as mortgage interest, property taxes, and maintenance) can be deducted to reduce taxable income. A few other considerations for individuals are the liquidity of real estate and the ongoing efforts that need to be made. You can’t simply sell a bathroom to raise a portion of funds, and a quick sale could result in lower value. Lastly, effort is required for upkeep and maintenance. Doing it yourself could require work that becomes unmanageable in later years, and the use of a management company will reduce your overall return.

  
  

• Annuities Purchasing an annuity from a life insurance company can provide guaranteed income for life or a set period. Annuity payments are partially taxable, depending on the type of annuity and the source of the funds used to purchase it. They provide ongoing income with little to no ongoing decision making. Although wonderful for structuring an easy systematic cashflow, they can limit access to lump sum amounts and provide lower return than alternative investments (depending on the age of the annuitant).

  
  

• Reverse Mortgages and Home Equity Canadian retirees who own their own home may access home equity through reverse mortgage or by downsizing. Funds received through a reverse mortgage are not considered taxable income, but interest accrues on the amount borrowed and is due upon sale of the home or death.

  
  

• Bank Loans Against Life Insurance Cash Value Although this is very uncommon it is an option that should be noted. The concept is to take the Cash Value of a whole life insurance product and assign the policy and beneficiary to a bank. The bank in turn lends back to you a portion of the cash surrender value. This amount is received tax-free to use during retirement. This structure can be complex for many individuals and dramatically impact family estate plans.

Consideration for Retirement Income Planning

Effective retirement income planning involves coordinating the timing and source of withdrawals to maximize after tax-income and maintain eligibility for benefits. Factors such as inflation, longevity, risk, market volatility, and health care costs should be considered. Consulting with Keill & Associates Wealth Advisory can help retirees develop a tailored income strategy that integrates all available sources and addresses their unique needs and goals.

Conclusion

Canadian retirees have access to a diverse array of income sources, from government pensions and employer plans to personal savings and alternative streams. Understanding the features, benefits and tax implications of each type of income is essential for building a secure and sustainable retirement plan. With careful planning and informed decision-making, Canadians can ensure their retirement years are financially comfortable and fulfilling.

Disclaimer and Notice to Reader: This Serious Money Paper should not be construed as financial, legal or tax advice but rather only as a general statement and explanation of the topic matter. Professional financial, tax and legal advice should be obtained for the readers own personal situation. For more information on this topic or how it applies to your family. please contact our Wealth Advisory Team.

Last edit Feb 2026