How can the retirement pension under the Québec Pension Plan help you better manage the financial risks related to retirement?
In 2022, everyone is talking about inflation. The cost of living is rising quickly, which can be a source of stress for many people, including retirees. The inflation risk is one of four financial risks associated with retirement. The longevity risk, the rate of return risk and the liquidity risk are also risks that could harm your finances.
The different risks still exist, but can cause more problems when you are retired, should you not have enough income for example. It is important to think about it before retiring, and sooner rather than later... Good financial planning, including a withdrawal plan, is the best tool to manage those risks.
By accumulating enough income before retirement and by planning adequately for the withdrawal of accrued amounts, you are giving yourself financial security.
Applying for your retirement pension under the Québec Pension Plan: a decision with impacts!
The age at which you apply for your retirement pension under the Québec Pension Plan (QPP) affects the amount of your pension. If, for some people, applying for their retirement pension as soon as they turn 60 is the best solution, in most cases, it is advantageous to apply for it later.
If you apply for your pension at age 60, it will be lower than if you apply for it at age 65. At age 70, your pension will be even higher.
Postponing applying for your pension under the
QPP can be an excellent solution to ensure that you will have a higher income when you retire, and therefore a better ability to manage the various financial risks related to retirement.
Guaranteed income and income protected against inflation
It is also good to know that, among your various sources of retirement income, some of them are protected against the inflation risk. Such is the case for your retirement pension under the
QPP, which is indexed annually, in addition to being paid for life. Since it follows the inflation rate, you can count on the fact that it will keep its value over time. With this in mind, it can be wise to get the most out of it. To do so, you can first withdraw your investments that generate less income and that are likely to decrease in value on a long-term basis.
When should you apply for your pension? 5 factors to consider...
It seems obvious that postponing your pension under the
QPP has its advantages. However, several factors are to be considered in the equation. Retraite Québec recommends that you think about your personal situation based on 5 key factors:
- Your retirement income: will it be enough?
- Your state of health: are you in good health? Are there any conditions likely to reduce your life expectancy?
- The impact of your retirement pension on your taxes
- Whether or not you have personal retirement savings (RRSP, VRSP, TFSA, etc.)
- The interrelation between the different public programs; is the income you expect to receive at age 65 lower than the eligibility threshold of the Guaranteed Income Supplement?
If you think that you will need income over a long period, if you are in good health or if you have personal retirement savings that you can use first, why not postpone your application for a retirement pension under the
QPP and get the most out of it?
If, however, your life expectancy is limited or if you consider increasing your income over a short period because you will be eligible for other benefits at age 65, you could apply for your pension under the
QPP sooner.
The idea is to fully understand your situation and to do your utmost to ensure that you will have enough income throughout retirement and to better manage the financial risks related to retirement.
Do not hesitate to consult an expert on financial planning, who will guide you through organizing that aspect before you retire.
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