Returning to work after retirement

For many Canadians, their retirement plans changed with the economy. Many saw their retirement savings portfolio shrink significantly. Now instead of planning for retirements, Canadians are beginning to worry about outliving their savings.

A poll by the Royal Bank of Canada showed 75 per cent of retired Canadians were not aware of how much money they spent in their first year of retirement. And for those who did know, just under half said it was more than expected.

There are many things to consider before exiting the workforce. While some older Canadians are planning to fully embrace the life retirement brings, there are others who find a complete break from work more difficult or no longer have the savings they anticipated. Scaling back hours or working part-time are becoming options.

And in some cases, it is not always about the money. According to the Statistics Canada, one-fifth of retired individuals had completed paid work after their retirement. The reasons were not all money driven. More than half of the people surveyed cited reasons other than financial for returning to the work force. Some said they did not like retirement while others enjoyed the rewards of working.

Retirees going back to work are not always returning to their previous jobs but instead look for new challenges for their skills.

Tax implications
For retirees going back to the workforce, there can be tax implications. Depending on your existing pension income, earning additional income may mean a reduction of government income. It is important to investigate your tax situation before you start a new job.

CPP rules have recently changed to reflect the fact more older Canadians are working past the age of 65. Under the old rules, people between 60 and 65 who wanted to start receiving retirement pension early had to stop working for at least two months. If they subsequently went back to work, they did not have to resume contributing to the plan.

Now people no longer need to stop working in order to receive retirement pension. However, if they do continue to work while receiving pension, they will have to continue making contributions, which will increase their monthly entitlement. Under the old system, if you decided to take CPP at 70, your pension was 30 per cent more than it would have been if you took it at age 65. Under the new rules, that same delay will give you a 42 per cent increase.

If you have an employer pension plan, there may be restrictions on work after retirement in the collective agreement. Again, check your situation before taking a new job.

Your tax situation may be helped if you are able to take advantage of the pension income splitting option. This allows eligible pension income to be split with a spouse or common-law partner to help lower your tax payable.

For more information on returning to the workforce after retirement, check out, and

Photo © P_Wei

Article courtesy of H&R Block Canada