Factors to consider before deferring your federal pension to age 70

Reader John poses some interesting questions that allow us to come back to certain payout principles. It will change us a little from the elections.

The 63-year-old retiree has been receiving his Quebec Pension Plan (QPP) benefit for three years, “the maximum,” as he puts it. He separated her from her spouse. The latter has contributed very little to the regime, he gets almost nothing from it.

Additionally, our reader receives approximately $56,000 per year from two non-indexed defined benefit pension funds. He has also contributed to his spouse’s RRSP over the years, the account now contains $144,000. The pair also have $42,000 worth of TFSAs.

Both spouses are entitled to an old-age pension in two years.

Questions from our readers:

“If we both defer our first pension payments until age 70, is it true that there is no annuity paid to the survivors in the event of death? »

“If so, isn’t it a significant risk to leave money on the table?” »

“Could my income be getting dangerously close to where I have to reimburse part of my PSV? »

Let’s go in order.

manage risks

No, the pension scheme does not provide a pension to the surviving spouse, except for an allowance, if the hypothetical beneficiary is between the ages of 60 and 64 and their income does not exceed a certain limit.

“Untimely 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 points out that our readers’ pension funds offer no protection against rising living costs, so the couple’s spending power will erode 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. The pension will be increased by 36% as a result of the postponement to the age of 70 planned by our reader. At the age of 75, it increases by another 10%.

“With the deferral, a larger portion of the couple’s total income is indexed,” says the independent planner.

According to Martin Dupras, the gap between 65 and 70 years can be partially compensated by RRSP withdrawals. Otherwise, the couple’s livelihood is financed by various pensions. The strategy should be avoided if the health condition creates a fear of early death.

This type of decision would be easy to make 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 an untimely death; tighten your belt later when you reach old age.

income splitting

As for concerns about part of his pension being amputated by excessive income, Jean can sleep on his ears. The PSV clawback threshold is currently approaching $80,000, a limit that is indexed every year.

Our reader can’t get close to that, especially since he can share the income from his two company pension plans with his spouse. This option is now available to him in relation to the federal tax authorities and from the age of 65 in relation to Quebec taxes.

With splitting, income is divided equally between spouses to reduce the tax burden.

Barring health issues, the strategy to follow seems pretty clear. If the fear of leaving it on the table is interfering with their sleep, retirees can cut the pear in half by deferring retirement to 68, benefiting 21.6% instead of 36%.

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