10 Sources of Retirement Income in Canada

Planning for your financial future requires understanding the diverse income streams available in Canada. Here’s a breakdown of 10 key sources of income, how they are taxed, and who is eligible.

1. Canada Pension Plan (CPP)

The Canada Pension Plan (CPP) is a monthly, taxable benefit that replaces a portion of your income when you retire. Eligibility is based on your contributions during your working years.

• Eligibility: Canadians over 60 who have contributed to CPP.
• How it's calculated: Based on your contributions and years worked. The maximum monthly benefit in 2024 is $1,306.57.
• Taxation: Fully taxable income.
• When you can take it: Starting at age 60, with a reduction for early access or an increase if deferred to age 70.

2. Old Age Security (OAS)

Old Age Security (OAS) is a government pension for seniors, paid monthly to those aged 65 or older, regardless of work history.

• Eligibility: Canadians 65+ who meet residency requirements.
• How it's calculated: Based on years lived in Canada after age 18.
• Taxation: Fully taxable income; OAS can be clawed back if your income exceeds a certain threshold ($86,912 in 2024).
• When you can take it: At age 65, with a deferral option up to age 70 for higher payouts.

3. Employer Pension Plans

Employer-sponsored pension plans provide guaranteed income during retirement based on your work history and contributions.

• Eligibility: Workers enrolled in company pension plans.
• How it's calculated: Defined by the type of plan (defined benefit or defined contribution) and contributions.
• Taxation: Fully taxable when you begin receiving payments.
• When you can take it: Typically accessible at age 55 or older.

4. Downsizing or Sale of Home

Many retirees downsize or sell their homes to access the equity built up over time, providing a significant income boost.

• Eligibility: Homeowners.
• How it's calculated: Sale price minus mortgage and selling costs.
• Taxation: The sale of your principal residence is tax-free, but second properties may trigger capital gains tax.
• When you can take it: Anytime after selling your property.

5. Non-Registered Savings

Non-registered accounts include savings or investment accounts not sheltered by tax-advantaged programs like RRSPs or TFSAs.

• Eligibility: Open to anyone.
• How it's calculated: Based on investment growth (interest, dividends, capital gains).
• Taxation: Interest income is fully taxable, dividends are eligible for tax credits, and capital gains are taxed at 50%.
• When you can take it: Anytime, as no withdrawal restrictions apply.

6. Rental Income or Sale of Rental Property

If you own rental properties, rental income or proceeds from a sale can provide substantial income in retirement.

• Eligibility: Property owners.
• How it's calculated: Rental income minus expenses; sale proceeds minus selling costs and capital gains tax.
• Taxation: Rental income is fully taxable, and property sales trigger capital gains tax on 50% of the gain.
• When you can take it: Rental income is continuous; sale income is available after the transaction.

7. Tax-Free Savings Account (TFSA)

The Tax-Free Savings Account (TFSA) allows tax-free growth and withdrawals, making it an excellent tool for retirement income.

• Eligibility: Canadians aged 18+ with a valid SIN.
• How it's calculated: Contributions grow tax-free through investments like stocks, bonds, or savings.
• Taxation: No tax on withdrawals or investment gains.
• When you can take it: Withdraw anytime, for any reason.

8. Guaranteed Income Supplement (GIS)

GIS is a government benefit designed to support low-income seniors, providing additional income alongside OAS.

• Eligibility: Low-income seniors receiving OAS.
• How it's calculated: Based on income level; the lower your income, the higher the benefit.
• Taxation: GIS is not taxable.
• When you can take it: Available at age 65, alongside OAS.

9. Registered Retirement Savings Plan (RRSP)

The RRSP allows tax-deferred savings for retirement, with taxable withdrawals during retirement.

• Eligibility: Canadians who have earned income.
• How it's calculated: Contributions grow tax-deferred and can be withdrawn at retirement.
• Taxation: Withdrawals are fully taxable.
• When you can take it: Withdrawals can be made anytime, but converting to a RRIF is mandatory by age 71.

Check out these articles on RRSP Meltdown and RRSP Withdrawl Tax Calculator.

10. Part-Time Work

Many retirees choose part-time work to supplement their income, providing flexibility and financial security.

• Eligibility: Open to anyone willing to work.
• How it's calculated: Income depends on hours worked and job type.
• Taxation: Fully taxable as earned income.
• When you can take it: Anytime during retirement.

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