Working into retirement pays more than you think, says report

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Working at retirement age pays more than you think, says a report

Interview with Luc Godbout, professor at the University of Sherbrooke, as part of the program “Zone economy”< /p>

Working into retirement would pay more than many retirees believe, who fear paying more tax and losing their pension benefits.

This is the conclusion of a recent report from the Chair in Taxation and Public Finance (CFFP) at the University of Sherbrooke, co-authored by Luc Godbout, full professor, and Suzie St-Cerny, research professional.

A number of rather stubborn preconceived ideas lead many to mistakenly believe that it hardly pays to go and earn additional work income once you retire, write the authors. However, the analysis of several typical cases shows that the retained share of earned work income is greater than many anticipate.

The governments of Canada and Quebec have recently made several changes to make taxation more attractive to experienced workers, which means that the perceptions of many seniors in this regard no longer correspond to reality, adds Mr. Godbout in interview. Governments have acted in recent years. There have been changes.

He cites as an example the Guaranteed Income Supplement (GIS), certain conditions of which have changed since 2020. Remember that the first $5,000 of work income is not taken into account in the amount to which recipients are entitled. For the $5,000 to $10,000 bracket, only half of the income is taken into account. Previously, you lost the Guaranteed Income Supplement much more quickly when you earned work income exceeding $3,500, says Mr. Godbout.

The report presents different scenarios which show that low-income workers keep more money in their pockets when they go for extra income, taking into account pension benefits, employee contributions and income. tax.

Whatever one may say, a lot of it stays in the pockets of those who make the effort to work and it materially increases the standard of living, so what they will be able to afford in terms of goods and services, comments Mr. Godbout.

The study offers the example of a 67-year-old single person, whose retirement income would be limited to federal and QPP retirement benefits. Outside the labor market, this person would have an annual disposable income of $22,648.

If this person earned $10,000 in employment income, they would have an annual income of $29,964 and would therefore keep 73.2% of their employment income.

< p class="e-p">Even with an income of $20,000, this person would greatly improve his lot; annual disposable income would increase to $34,517. The senior would only recover 59.3% of their employment income, but they would still have increased their disposable income by $11,869 by earning employment income.

Returning to work is not just good for low-income people. A person with a retirement income of $62,666 would have a disposable income of $49,205. If this person returned to the labor market to earn a salary of $40,000, they would keep 53.2% of the earnings earned. Ultimately, she would have more purchasing power with a disposable income of $70,502.

Governments could do even more to make work fiscally more attractive to experienced workers, say the two experts. The report proposes in particular to make QPP contributions optional for workers over 65.

The two tax experts also suggest that the credit for career extension be refundable. It is a credit from which we benefit as much as we have tax to pay. When you don't have to pay tax, for people with low incomes, the tax credit loses its interest.

Increase incentives to work for retirees is even more important in the context of an aging population and a scarcity of labour, adds Mr. Godbout. There are 1.2 million people who are between the ages of 60 and 69. It is addressed – the recommendations – to a large pool of the population to encourage them to stay or return to the labor market.

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