CANADA: 'UNRETIRED'

. TORONTO, Ontario / FINANCIAL POST / Home / August 1, 2009 'Unretired' By James Pasternak, Financial Post When Toronto resident Charlotte Neal, 68, retired three years ago, her financial plan included some fairly traditional components. There was income from Canada Pension Plan (CPP), Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). Ms. Neal had about $100,000 in registered retirement savings and she also owned a mortgage-free townhouse and had no other debts. Another piece of Ms. Neal's "retirement" plan included working. She is a part-time employee at a seniors residence. "It would probably pay a couple of my bills each month. Old age pension and Canada Pension really don't cut it. I don't get full Canada Pension, so there has to be another little bit of extra money coming in," says Ms. Neal. Ms. Neal is part of the growing trend of Canadians who, whether by choice or need, are part of the working "retired." Earning new income has become an increasingly important component of retirement planning. In 2002, it was found that just over one-fifth (22%) of recent retirees said they had done some paid work. Another 4% said they had unsuccessfully looked for work. In 2006, the year Ms. Neal retired, there were 2.1 million Canadians nearing "retirement" (aged 55 to 64) who were either employed or looking for work -- more than double the total in 1976. But that was economic light years away from today's nagging recession. The decline in equity markets, the shrinking of home values and the increase in household debt have placed new emphasis on the "work option" as part of retirement planning. Half the respondents to a 2009 RBC Wealth Managemenet-Ipsos Reid study said their view of retirement has changed as a result of the current economy. About 26% said they may have to work longer than expected and 14% said they will have to do more retirement planning. The growing concern over the unfunded liabilities of various private-sector pension plans doesn't help. "People have been caught off-guard with this," says Mary Prime, a certified financial advisor and the owner of Etobicoke, Ont.-based Prime Consulting. Her fee-only business provides insight and guidance to recently displaced or laid-off workers. "I even hesitate to use the term 'retirement' these days because a lot of people retire to something." And the numbers seem to bear this out. There has been a recent upturn in the retirement age, an increase in the labour force participation rate of older workers and a falling off of pension-plan coverage. At the same time, an increasing number of Canadians are receiving pension income, while not technically retiring, at a younger age. Approximately 20% of Canadian tax filers are receiving private pension income prior to their 60th birthday. As employment income becomes increasingly integrated into retirement planning, it joins other short-and long-term income streams that must be managed strategically. Retired Carlisle, Ont., resident John Nightingale receives CPP, OAS, a Canadian company pension and a British pension. He has also done some contract work for his former employer and he has a mortgage-free home with about $250,000 in equity that he could tap into as a reverse mortgage. "The one piece of advice I got from someone a long time ago is to get as many sources of income as you can. Do not rely on the company pension; do not rely on Canada Pension Plan and Old Age Security," says Mr. Nightingale, who did not wish to publish his real name. It is this backdrop of multiple decisions and options that demands chessboard financial planning. "They need to do a budget and then take a look at how they are going to meet those income needs going forward. It really depends on their financial wherewithal, their assets and their debts," says Ms. Prime. For example, workers approaching 60 should decide whether to exercise the "early option" for receiving CPP payments. Under the current rules, workers can start receiving CPP pension money as early as age 60; the pension is reduced by 0.5% for each month the start date precedes the recipient's 65th birthday, to a maximum reduction of 30%. Also, one has to "stop work or significantly reduce their earnings" in order to receive early CPP. Richard Shillington, senior associate, of Ottawa-based Informetrica Ltd., a Canadian company specializing in quantitative economic research, favours the early CPP option for those who are still working. Because recipients of CPP no longer have to contribute to the plan, they realize some savings. In fact, the self-employed -- who must contribute as employee and employer -- would save about $3,800 per year. At the same time, those still working would receive about $7,000 per year in early CPP benefits. That's an advantage over the five-year early option period of saving about $20,000 in CPP contributions and receiving $35,000 in early benefits. Adding employment income to pension income, however, could affect Old Age Security benefits. For 2009, the threshold at which the OAS "clawback" starts is just over $66,000. If your net income (including OAS) exceeds this amount, 15% of the amount of income above the threshold is deducted from the OAS payments. The current maximum OAS monthly benefit is a little over $500. Even a small part-time job could affect recipients of the Guaranteed Income Supplement. A single person with income exceeding $15,600 (not including OAS) will not be eligible for GIS. Married or common-law couples whose income exceeds $20,700 will not qualify for GIS. The maximum benefit for a single person is $650 per year. It is also essential to work around the rules governing Employment Insurance (EI) benefits. Ms. Prime advises displaced employees who receive a severance that they are also eligible for EI after the severance period as "long as they are available and looking for work." The current maximum EI benefit is $447 per week. Another piece of the retirement puzzle is health benefits. More private companies are dismantling benefits paid after retirement. "A lot of people don't even think about it because they don't pay for it. And suddenly they don't have it," says Stephen Smith, a certified financial planner and principal of Port Hope, Ont.-based Yorkminster Insurance Brokers Ltd. "Not many companies will continue the benefits plan when people stop working or if they do, they won't continue them for the surviving spouse," says Mr. Smith. So, workforce participation endures not only as a source of income, but as a route to extended health care. For those who are in between corporate benefits plans -- or unable to find a new employer to offer one -- one option is a private plan such as CARP's FollowMe Health, offered by The McLennan Group ( http://50plus.themclennangroup.com).As for Ms. Neal, she feels fortunate that she has employment income and pension income as Canada's unemployment rate creeps upward and so does her age. [rc] © 2009 The National Post Company.