Is it worth working in retirement

Is it worth working in retirement?

While the Quebec government has announced the launch of a pilot project designed to encourage work among people aged 60 to 69, many retirees are wondering whether it's really worth it.

• Also read: Seniors discouraged by taxes: “Give us our clear wages, then we’ll go to work!”

Retirees fear that their pensions will be reduced if they remain on the job market. Hadi Ajab, independent financial planner and financial security advisor, collective savings representative at PEAK Investment Services, did some calculations to help you see things more clearly.

Retirement pension

Please note that the Federal Government Old Age Pension (OAS) will be reduced if your net annual income exceeds $86,912 (2023).

This income includes pension funds (OAS, QPP, employer pension funds, etc.), RRIF withdrawals and salaries.

Does your income exceed this limit? “Every additional dollar results in a refund tax of 15 cents OAS, and starting with an income of $141,917, a person between the ages of 65 and 74 loses all of their OAS,” warns Hadi Ajab.

The SRG was hit hard

If you receive the Federal Guaranteed Income Supplement (GIS), it will be reduced by 25 to 75% if you earn more than $5,000. If income exceeds $21,624 for a single person, the SRG is lost entirely.

Here is a numerical example for a 66-year-old single woman:

A person who has no income other than their PSV receives a maximum monthly SRG of $1,065 (March 2024), a tax-free amount.

With an additional labor income of $10,000 per year, the GIS increases to $951 per month.

Additionally, if the person receives $10,000 annually in QPP, the GIS drops to $383. If she has no earned income but receives full PSV and $10,000 QPP, the monthly SRG is $484.

“It's worth thinking about and it should encourage you to think about whether you're going to lose or not before applying for your QPP.” But it's not just a question of money, you also have to consider other aspects related to it work, such as staying active and maintaining social contacts,” says Hadi Ajab.

Good to know: If you are between 60 and 64 and your spouse receives the maximum GIS, you may be eligible for the supplement, an amount paid by the federal government up to a maximum of $1,354.

The couple's total income cannot exceed $39,984, and employment income could therefore put you at a disadvantage.

The Quebec Pension Plan

With QPP, earned income does not reduce the pension.

If you continue to work and contribute, you will also be entitled to the old age pension supplement.

Since January 2024, employees aged 65 and over who are already receiving their pension can stop contributing to the QPP, and their employer contributions will also stop.

Is the game worth it?

“For an earned income of $10,000, the employee must pay $416 annually, resulting in a lifetime supplementary pension of $43 per year. This becomes profitable starting at age 74. It is even worse for self-employed people who have to pay their share of the QPP and that of their employer. It will be necessary for them to wait until they turn 82 before it becomes profitable,” warns Hadi Ajab.

Consider the tax bill

Also consider the tax consequences, as your marginal tax rate increases as you move into a higher income bracket.

However, once you turn 60, you are eligible for the non-refundable career extension tax credit (Quebec).

“To be eligible, you must have turned 60 before December 31, 2023 and earned at least $5,000 during the year,” says Yannick Lemay, tax expert and spokesperson for H&R Block.

This credit directly reduces the tax burden, which makes it all the more attractive.

Between ages 60 and 64, the maximum loan amount is $1,400 and increases to $1,540 for those age 65 and older.

Please note that these amounts are reduced if earned income is above the threshold of $38,945 (2023).

Labor income is the income earned through employment, but also the net income from commercial activity.

Staying in the job market will also give you access to other credits, allowances and deductions to which all workers are entitled.

To get a better idea of ​​what's actually left in your pockets, use the Quebec Ministry of Finance's earned income retained upon retirement in 2024 calculator.