Finance : Is working in retirement worth it?

By NextHome Staff
February 06, 2017
The attitude of retirement is changing. According to a 2014 Bank of Montreal survey on work habits after retirement, 59 per cent of the respondents said that they would likely take a part time job after the age of 65. For some retirees, the part time job is an opportunity to work at a place where they enjoy working, and for others it’s a financial necessity in order to pay the monthly bills.You’ll still pay income tax Working in retirement doesn’t mean that you’re free from paying taxes. It’s important to have a clear financial picture of your guaranteed retirement income, and if your post-retirement job is going to put you into a higher tax bracket. For 2016, Old Age Security (OAS) for retirees with a net income exceeding $73,756 starts to get clawed back. For each dollar of income above this limit, the amount of the basic OAS pension is reduced by 15 cents. If you’re income is close to this amount, ensure that you’re not going to lose more than you gain.Extend your savings On a positive note, even if you brought in $1,000 per month, it can significantly increase the life of your retirement savings. An analysis, prepared by ETF Capital Management’s Fabien Ouellette, suggested that if a couple, between the ages of 65 and 75, had expenses around $60,000 per year, as well as a nest egg of $500,000, then a monthly income of $1,000 would help their savings last well into their 90s. They would see the value of their savings rise in the first few years of retirement, in comparison to a couple who didn’t earn extra income and would experience their savings depleted by their 80s.The cost of retirementAccording to financial experts, you will require 70 to 80 per cent of your current working income to live on during retirement – that’s if you choose to live in the same residence. It does not take into account the cost of travel, hobbies, or other extra events that you may want to take part in. It also doesn’t consider the lower cost of living if you choose to downsize your home. According to a 2015 BMO Financial Group study, Canadians spend, on average, $2,400 per month in their retirement.If working in retirement, ensure that you’re not going to lose more than you gain.Get the real number Calculate what your life costs, including your mortgage (if you have one) or rent. Add up your monthly bills, plus insurance premiums for your home and car, as well as how much you spend each month on groceries and maintenance costs. Next, add in any trips that you’d like to take, as well as entertainment and hobbies you’ve always wanted to try. Your retirement dreams may actually increase your cost of living.Calculate your retirement income In retirement, you may have a work pension, on top of the Canada Pension Plan (CPP), Old Age Security (OAS), other government benefits and personal savings. Chances are, you have a Registered Retirement Saving Plan (RRSP) and a Tax Free Saving’s Account (TFSA). Talk to a tax professional to see what the financial impact would be of having a post-retirement job.There are social and mental health benefits that come from being engaged in the work force after the age of 65. Working in retirement can be good for one’s wellbeing, and might be something that you choose to do. Personal finance expert and journalist, Rubina Ahmed-Haq holds a CSC designation, appears in Condo Life, on CBC Radio, CBC News Network, CTV Your Morning, Global Toronto ratesupermarket.ca and debt.ca. Follow her on twitter @alwayssavemoney. AlwaysSaveMoney.ca

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