Pop Quiz!

Test your knowledge on income sources for your retiring clients.

Q: Can CPP benefits commence early (before age 65) if you are over age 60 and earning $50,000 per year in fulltime employment?

A: Yes, as long as the client is at least age 60 and has at least two consecutive months where employment income is below the maximum CPP monthly retirement income payable to a pensioner who is age 65. Once started, the annuitant can earn as much employment income as he or she wishes without affecting the CPP entitlement. The retiree can no longer make contributions to CPP once he or she commences drawing income.

Q: True or False: Since Old Age Security (OAS) is not a contributory plan, the income payments will be the same for every Canadian citizen as long as he or she is age 65 and has had citizenship for at least 20 years.

A: False. In order to receive the full entitlement, 40 years of citizenship is required. However, partial entitlements are available on a pro-rated basis.

Q: Why may dividend income from non-registered investments be disadvantageous for those over 65?

A: The Age Amount (credit) is reduced and ultimately eliminated based on an individual’s net income. In the calculation of the dividend tax credit, the “gross-up” occurs prior to the calculation of net income.This serves to actually inflate the net-income calculation. The dividend credit is applied after that.

Q: Do lump sum withdrawals from an RRSP, for those over 65, qualify as eligible income for the pension amount?

A: No, lump sum withdrawals do not qualify. For RRSP money to be eligible, the income must be a periodic receipt.

Q: When determining the age used to set the dollar amounts for RRIF and Life Income Fund (LIF) minimums, as well as LIF maximums, is the calculation based on the plan holder’s age on January 1 of each year, or the age they will turn during that calendar year?

A: It is based on the age the individual (or spouse if this age has been used for minimum withdrawal calculation) is on January 1.

(03/17/06)

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.