When can you Stop Working or Reduce Your Working Hours?

On the Amounts and types of income you will need when you retire web page, we saw how to estimate your income to pay for the retirement you want.

You can use our CompuPension tool to create different scenarios based on your expected retirement income and the age at which you wish to retire.

But before you start carrying out simulations, here are a few basic principles about pensions and the Old Age Security pension.

Retirement pension under the Québec Pension Plan

At age 65, you can receive 100% of the expected retirement pension under the Québec Pension Plan (QPP). If you start receiving it:

• after age 65, it will be higher for life;
• before age 65, it will be lower for life.

Pension beginning after age 65

The pension increases by 0.7% for each month that has passed since you turned 65, which corresponds to 8.4% per year. Therefore, if you do the math, a person who begins receiving his or her retirement pension at age 72 will receive a pension 58.8% higher than the one he or she would have received at age 65. For example, a person would receive $8200 per year as of age 65, but if he or she waited until age 72, he or she would instead receive $13 021 per year for the rest of his or her life.

Age 72 may seem far away, but it does not necessarily mean you have to wait that long to stop working! The same person could decide to withdraw his or her savings and Old Age Security pension at age 65, but wait for his or her pension under the QPP. That way, his or her pension is much higher, guaranteed for life and will increase each year based on the cost of living. How nice! Especially since this person's retirement will probably last 25 or 30 years, if you consider life expectancy!

Pension beginning before age 65

We have just seen that your pension can increase if you wait, and decrease if you start receiving it before the expected age. It decreases by 0.5% to 0.6% for each month before you turn 65. Therefore, if you start receiving it at age 60, you will receive a pension that is 30% to 36% lower than the pension you would have received at age 65. For example, you would receive $5740 instead of $8200 per year for a 30% lower pension. Will you have enough money in retirement if you apply for your pension before age 65?

In most cases, it is more advantageous to wait until at least age 65 to receive your pension under the QPP, but there are two exceptions:

• You have health problems that significantly decrease your life expectancy. Therefore, it would probably be in your best interest to apply for your pension at age 60.
• You believe that you are entitled to the Guaranteed Income Supplement (GIS) at age 65 and, by then, you need more money to meet your needs. Even though your pension under the QPP will be lower, the GIS will compensate for part of the reduction. To receive the GIS, your income must not exceed a certain amount as of age 65. And if you have a spouse, his or her income is also taken into account in the calculation. Therefore, take a good look at your situation, or ask a professional for advice!

Are you hesitating about the age at which to apply for your pension?

If you do not really know at which age you should apply for your pension under the Québec Pension Plan, you can go one year at a time. Start by waiting until you turn 61, then take a look at your finances. If your financial situation looks good for another year, wait until you turn 62 and so on. You will see where it takes you and if you are able to make it to 65 or even later. It will give you greater financial security in the long term.

Old Age Security pension

For the Old Age Security pension, you can start receiving it as of age 65, but you can postpone it until age 70 to increase its amount. It increases by 7.2% per year.

Pension under a workplace pension plan

If you have access to a workplace pension plan, check to see at which age you can expect to receive 100% of your pension, and whether you can retire earlier without incurring a reduction. Can you reduce your working hours? Will your pension be indexed, that is, will it increase each year based the cost of living?