Whether out of necessity or for personal reasons, more and more pensioners are considering re-entering the labor market part-time. But what about their state pension?
In fact, you may have more money in your pocket than you think, as both levels of government have made changes in recent years to make it more attractive to return to work.
But to find out if it’s really worth it, you’ll need to whip out your calculator. Hadi Ajab, an independent financial planner and financial security advisor, explains what factors to consider.
PSV
For Old Age Security Annuity (OAS), note that it will be reduced if your annual net income for 2023 exceeds $86,912.
By annual income, we mean all sources of income: pension funds, Registered Retirement Savings Fund (RRIF) withdrawals, salary, etc. Above that amount, each additional dollar results in a 15 cent reduction in PSV.
“From an income of about $141,917 in 2023, a person between the ages of 65 and 74 will lose all PSV,” says Hadi Ajab.
QPP
Good news: Additional income has no impact on the Quebec Pension Plan (QPP). On the contrary, while you work, you continue to contribute to your QPP, which helps improve this state pension. This increase will take effect from January 1 of the year following the deposit. Note that if you earn $3,500 or more, you must contribute to the QPP. The maximum qualifying income for 2023 is $66,600.
In addition, you may ask Retraite Québec to cancel payment of the QPP if it has been less than six months since you received the QPP and you return to the labor market. If you are over 65, your state pension will also increase by around 8.4% per year of deferment, up to a maximum of 42% at the age of 70.
On the other hand, the federally paid Guaranteed Income Supplement (GIS) carries the full brunt of an income increase. In this case, every dollar earned over $5,000 is reduced by 25 to 75 cents. For example, a single person with no income other than PSV receives a monthly GIS of approximately $1,027. If he earns an additional $10,000 in labor income, the GIS drops to about $757. It is completely lost from $20,832 in 2021 revenue.
The reduction of the GIS could also have an impact on drug costs. To be eligible for free medication with the Régie de l’assurance maladie du Québec, a person aged 65 and over must receive 94% or more of the maximum GIS.
Consider the tax
Be careful, because when you increase your income with a job, you also have to consider taxation. Then you could move to a higher income bracket and thereby increase your marginal tax rate.
However, to encourage retirees to earn extra income alongside their state retirement pension, the state government introduced the non-refundable career extension tax credit. Between the ages of 60 and 64, the maximum loan amount is $1,500, increasing to $1,650 at age 65. To qualify, earned income must be greater than $5,000. The amount of the loan decreases from $36,590 of earned income and disappears entirely from $66,590 for those ages 60-64 and $69,590 for those ages 65 and older.
Who can benefit the most?
Working in retirement can be more profitable than you think, according to a recent study by the Research Chair in Taxation and Public Finance at the University of Sherbrooke. The retained part of labor income is interesting in several cases presented in the research.
For example, a 67-year-old modest-income retiree receiving about $21,000 in public pensions retains 73.2% on a $10,000 salary, or a $7,316 increase in disposable income.
With retirement income of $36,066, a 67-year-old retiree making $20,000 would still keep 61.5%, or $12,300. At $30,000, 58.2% would have stayed in his pocket ($17,460).
Those with low to average retirement incomes can benefit the most from finding extra income.
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