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BMO Bank of Montreal

February 11, 2012 08:00 ET

BMO Retirement Tips of the Day: Take Advantage of Government Pension Plans-CPP, QPP and OAS

TORONTO, ONTARIO--(Marketwire - Feb. 11, 2012) - As the February 29th deadline approaches to make a contribution to a Registered Retirement Savings Plan (RRSP) and as part of its ongoing commitment to improving financial literacy, BMO Financial Group will be providing daily retirement tips during the month of February from BMO Retirement Institute Head Tina Di Vito's new book 52 Ways To Wreck Your Retirement…And How To Rescue It.

Tip Number 21:

Learn how much you are entitled to receive under the Canadian Pension Plan (CPP) or Quebec Pension Plan (QPP)

When you estimate your retirement income, factor into the equation how much you expect to receive from the CPP or QPP (for residents of Quebec). The CPP and QPP are defined benefit pension plans that offer guaranteed income for the life of plan members. However, your entitlement will depend upon how much you contributed as a member of the plan and how long your contributions remained in the plan.

Anyone aged 18 years and older is entitled to participate in the CPP/QPP, but you must have made at least one contribution to the plan and you can only begin to receive CPP/QPP payments after you reach the age of 60. You can apply for your benefits any time between the ages of 60 and 70; you can choose to work after you have begun collecting, and you can continue to contribute until you are 70 years old.

To give you an idea of the size of pension you may be entitled to receive under the CPP/QPP, contact Service Canada and obtain a pension statement.

Tip Number 22:

Understand the benefits of the Old Age Security (OAS) pension

With the OAS pension; you are entitled to receive a monthly income after the age of 65, and eligibility is based on your age and on Canadian residency.

While the maximum OAS pension you are entitled to receive is not a large amount, it is important to understand the rules surrounding OAS pensions and how they are calculated:

  1. Residency - to get the maximum pension you need to have lived in Canada for 40 years after your 18th birthday.
  2. Income Taxation - the pension is taxed as ordinary income. If your income is relatively low then your personal income tax credits may offset any taxes owing.
  3. Income Threshold & Clawback - If your annual retirement income is above a certain threshold, you will have to repay some or all of the OAS (this is called the "clawback").
  4. Retirement Outside of Canada - Once you start collecting OAS you will continue to receive it for the rest of your life. If you retire outside of Canada however, you will only continue to receive your OAS pension if you have lived in Canada for at least 20 years after your 18th birthday at the time you start collecting OAS.

For more information on retirement: www.bmo.com/retirement

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