Working after Retirement

By Olivia Li, The Toronto Star

November 6, 2008

Canada

Jane Smith has been teaching second graders for over 17 years and every payday, a portion of her paycheque faithfully goes into her pension plan.

She likes her job but fears the system will let her down once she reaches retirement age.

Smith is 55 years old; her two sons have grown up and out of the house; and she and her husband are resigned to the fact that they will continue working for a while – after her teaching career. 

"I may have to find another job (after retiring), if I want to live a comfortable lifestyle," she says. "Or maybe I will just have to keep my job until I die because there is a nice life insurance policy that is part of my benefit package."

She worries her pension plan, which works out a payout based on the last five years of her salary, is in trouble. She's not alone in this regard. Due to the recent heart-stopping plunges in the stock market, Canadian pension plans are walking the tightrope.

For many others headed to retirement; planning a post-retirement career is becoming commonplace.

However, some financial planners think people may be overlooking some things when planning part-time retirement work.

"Work can be a trap," says Lee Ann Davies, head of advanced retirement strategies for RBC. "You may not be seeing other opportunities ahead of you, like a way to still contribute to society and make something reflect who you are."

But for those like Smith who feel they need to work in order to maintain their present lifestyle, they need to know what kind of financial boost post-retirement work offers.

A senior tax analyst suggests retirees should first see if part-time work will jeopardize other benefits they can collect in the form of government pensions and subsidies. Programs like the Old Age Security (OAS) credit, the government pension plan (CPP) or their company's own pension package; even a guaranteed income supplement for those who've made less than most.

"If you qualify for OAS or CPP but you're working and your income is too high, your benefits will go down by increments," Cleo Hamel of H&R Block says. 

"When you return to work you are also back to paying EI premiums. So watch out what you're really keeping each paycheque."

"It's a commonly voiced concern of our customers," says John Near, an advisor contracted to SunLife Financial. "They ask if it's worthwhile to keep working."

"The biggest impact is taxation. Ontario has a graduated tax system, meaning the more you earn the more you're taxed."

He crunches the numbers. Those earning between $9,600 and $38,000 will have to pay 21 per cent of their income in taxes. An income between $38,000 and $63,500 means paying 31 per cent. Here's a scenario: You're already earning $3,000 a month from various pensions. You'd like to make an additional $2,500 per month from part-time work.

That sums up to a yearly income of $30,000. As a consequence, you'll be paying $9,100 back to the government in taxes.

"There are also drawbacks to OAS benefits," Near says. "If your annual income crosses the threshold of $64,718, you would lose 15 cents off of every dollar you earn in OAS benefits." 

Near and Hamel recommend cashing in on RRSPs as late as you can and Near offers another scenario: If you're a 60-year-old who's waited those extra three years to cash in your RRSP, your pension will grow by an extra 25 per cent.. 

If you have saved $200,000 in RRSPs, your lifetime pension will be $1,150 a month. Waiting another three years would mean a bigger monthly pension of $1,445.

"Therefore, some people may decide to work part-time after their retirement, so that instead of taking an income from their RRSPs right away, they can defer that decision and then have a better pension from their RRSPs later," says Near.

Getting a financial planner, bank advisor, or tax analyst to look at the numbers is important, but you can also research yourself. On Sunlife's website, you can use a "retirement calculator" to get to your bottom line. 

A program offered by RBC called Your Future By Design looks at several factors of a retiree's life. 

"The idea of retiring early now is gone," says Davies.

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