A peek at the files can tell us a lot about how Canada’s retirees are faring these days
By Olev Edur
Every year, Canada Revenue Agency (CRA) takes all its income tax information and, two or three years later, publishes a final summary based on every personal tax return filed for that taxation year. Only group figures are published—so as to ensure individual privacy—but the summaries contain a lot of data. If you dig deep enough, they’re a treasure trove of often useful and interesting information about what you and your peers are doing—or not doing.
Because the CRA final data include all returns, there’s no sampling error. Furthermore, because the information comes directly from our tax returns (with due privacy safeguards), it isn’t subject to the kinds of exaggeration and misstatement that can arise in typical phone, online, or shopping mall surveys, especially when finances are discussed. This is the straight dope on everybody (except maybe the crooks).
CRA’s T1 Final Statistics 2017 edition (for the 2015 tax year) summarizes the data from 27,772,460 (all figures are rounded to tens) individual tax returns filed for 2015, including reassessments up to the cut-off date of June 30, 2017. These stats show that when it comes to retirement planning, a lot of people seem to be getting it right, with some key taxation-related decisions. The stats also provide some insight into the demographic changes taking place in Canada and into a gender gap that broadens as we age.
As far as demographics are concerned, the CRA statistics clearly reflect the effects of Canada’s aging population. Of those 27,772,460 tax filers in 2015, 5,931,060 were 65 or older, and this “baby boom bulge” represented about 21 per cent of the total.
In 2010, five years earlier, 4.8 million seniors represented 19.4 per cent of the total tax-filing population of 24.7 million. In other words, the baby boom cohort grew by 22.3 per cent over the five years from 2010 to 2015, while the remainder of the tax-filing public grew only 10 per cent. (Recent Statistics Canada data indicate that for the first time, there are now more Canadians in the over-65 age cohort than in the under-15 cohort.)
While the all-ages tax-filing population in 2015 was 51.5 per cent (14.3 million) female and 48.5 per cent (13.4 million) male, the ratio diverges dramatically with age. Of those aged 65-plus, 54 per cent (3.2 million) were female and 46 per cent (2.7 million) were male, but in the 80-plus age cohort of 1.6 million, 61 per cent (968,000) were female and 39 per cent (628,000) were male.
The stats also show that of those 5.9 million 65-plus returns, 3.4 million were taxable while 2.5 million were non-taxable (a return is considered non-taxable when taxes and other levies such as Canada Pension Plan (CPP) contributions or employment insurance (EI) premiums are less than $2). But of those 2.5 million non-taxable returns, more than 1.5 million (60 per cent) were from women, and fewer than a million (40 per cent) were from men.
Overall, the average taxable income for those aged 65-plus was $41,048 in 2015; the average for men was $45,536, but for women it was $32,576—almost 30 per cent lower.
“Longevity can be challenging for those who are not financially prepared,” says Jennifer Poon, director of wealth management taxation at Scotiabank in Toronto. “Women tend to live longer, but not necessarily healthier, so it’s more important than ever to have a proper financial plan. Special planning is needed, and financial education for women on general investing, financial planning, and tax planning is key. With a robust and realistic income plan, the risk of running out of money can be greatly minimized.”
As would be expected given the availability of Old Age Security (OAS) to all Canadian residents regardless of income or marital status, the vast majority (5.6 million or 95 per cent) of those aged 65-plus declared OAS benefits averaging $6,221.25 each (compared to the maximum of about $6,600 for that year) in 2015.
Although full OAS benefits are available to everyone who has been a Canadian resident for 40 years after age 18, the average benefit and the number of claimants was less than 100 per cent for a few reasons.
First, those who haven’t lived here the required number of years would be entitled to a reduced benefit (bilateral treaties with other countries can also affect the equation).
Second, many high-income earners are subject to the OAS clawback. “Seniors must pay back all or a portion of their OAS, as well as any net federal supplements, if their annual income exceeds a certain amount,” Poon says. “If your net income before adjustments is greater than $77,580 [for 2019; the clawback threshold is indexed each year], then you will have to repay 15 per cent of the excess over this amount, up until the benefit is gone. Seniors should keep this OAS recovery tax in mind when creating an income plan.”
Third, some of these seniors will have deferred their OAS benefit in order to get a bigger benefit down the road (you can now defer OAS, and the longer you wait, the bigger your benefit will be, up to age 70).
Some 5.5 million recipients aged 65-plus also received an average of $7,135.57 in CPP benefits in 2015 or, viewed the other way, about six per cent of retirees received no CPP income at all, meaning they had never worked at jobs requiring CPP premium contributions. This could include full-time parents or disabled persons, among others. But as with OAS, it likely also includes people who are deferring their CPP benefits.
“Due to the enhanced benefits, deferring CPP or OAS past age 65 could be a good option for individuals in good health with a relatively long life expectancy,” says Todd Sigurdson, director, tax and estate planning at IG Wealth Management in Winnipeg. “But it would only be a consideration if you don’t need the income to meet your current retirement lifestyle expenses.
“For many people, CPP and OAS will be their only source of guaranteed retirement income, and they are concerned about whether or not they will be able to meet their retirement needs for their lifetime,” Sigurdson says. “By making the decision to defer CPP and OAS, they would ensure they receive an enhanced guaranteed retirement income that is indexed with inflation and hopefully eases their concerns regarding income longevity.”
Private Pensions and Credits
In addition to CPP and OAS, some 3.5 million retirees reported receiving an average of $19,823 from “other pensions and superannuation” (per line 115 of the tax return). If you are aged 65-plus, this line item can include payments received from RRIFs/LIFs/and some annuities, as well as income from bona fide pensions. These statistics translate into a hefty $70 billion in pension earnings annually on the part of Canada’s retirees, and that’s excluding OAS and CPP.
It may initially seem odd that while 3.5 million people aged 65-plus declared some pension income, 3.85 million claimed an average $1,901.95 as a pension income credit on line 314 of Schedule 1. Normally only income from line 115 counts towards this credit, so how did those other 350,000 retirees representing the difference manage to claim a pension credit without any pension income?
The answer likely lies in the fact that in 2015, almost a million tax filers aged 65-plus split an average $10,835.42 of their pension income with their spouses on line 116. By definition line 116 qualifies for the pension credit, too, so it can be reasonably surmised that a significant number if not all of those 350,000 claimants got their pension credits as the result of a transfer of pension income from their spouse’s return.
“Income that is qualified for the pension income credit also qualifies for pension income splitting,” Poon says. “When certain requirements are met, the spouse receiving the pension can transfer up to 50 per cent of the qualified income to his or her spouse. Pensioners should work with a tax advisor to determine the optimal amount to transfer after reviewing both spouses’ taxable incomes. Pension income splitting can significantly reduce the combined tax bill for the household.”
Savings and Investments
For 2015, 349,000 taxpayers aged 65-plus claimed an average of $10,788.81 in contributions to RRSPs and PRPPs (Pooled Registered Pension Plans). But given that you can’t contribute to these plans after the year you turn age 71, it may seem surprising to see this deduction being claimed by 7,790 people who were aged between 75 and 79, and another 5,920 tax filers aged 80-plus.
Many of these people likely had made large “catch-up” contributions sometime close to age 71 (perhaps as a result of getting a sizable severance payment or from the sale of a house) and were unable or unwilling to use up the resulting deduction by age 71. After all, once you’ve reduced your taxes to zero in a given year, there’s nothing further to be gained. This deduction can be carried forward indefinitely and would be better employed against future taxes.
“RRSP deductions are most advantageous during the years when the individual earned higher taxable income. RRSP contributions can be used to deduct against income and reduce marginal tax rates,” Poon says. “It’s smart to save RRSP contribution room earned in lower income years for higher income years for optimize the tax savings; those in lower income tax brackets may want to consider contributing to TFSA instead.”
When it comes to investment earnings, taxable dividend income averaging $16,397 was declared by almost 1.5 million people aged 65-plus, or about one-quarter of the total cohort. However, only about 1.3 million of these people claimed the dividend tax credit (average claim $2,538) on line 425 of Schedule 1. Thus it would seem that some 200,000 retirees missed out on a significant tax break.
But not necessarily, Poon says: “This may have to do with the OAS clawback. Canadian eligible dividends are grossed up at 38 per cent before receiving the dividend tax credit. While this may result in a lower effective tax rate, it is the grossed-up dividend amount that is tested for OAS recovery tax. Retirees receiving a lot of Canadian eligible dividends are more likely to see their OAS benefits reduced or eliminated.”
Taxable capital gains (line 127 of the return) averaging $11,196 were declared by 1,144,000 of the 65-plus population and since only one half of your gains are taxable, these people would actually have received an average gain of almost $22,400 apiece, making 2015 a pretty good year for a great many retirees’ investment portfolios.
Interest Income Strategies
Surprisingly, while retirees filed 3.4 million taxable returns in 2015, only 2.6 million declared any “interest and other investment income” (line 121 on the tax return—the average declared was $3,241.27). It’s hard to imagine anyone—other than those with absolutely no savings—not earning at least some interest, because interest-bearing securities should be at the base of everyone’s nest egg.
One likely explanation is that these 800,000 individuals earned all their interest income inside tax-sheltered plans such as RRSPs or TFSAs, while presumably earning dividends and capital gains outside the plan where sizable tax reductions can apply (all earnings withdrawn from a registered plan such as an RRSP or RRIF are fully taxed upon withdrawal).
This data may indicate widespread financial planning acumen on the part of retirees—or it may also reflect some retirees’ mistaken efforts to try to boost overall returns by going all in with stock market investments and forsaking interest-bearing investments entirely. Given the recent downturn in markets, those who have continued to spurn fixed-income investments must be feeling some pain at this point.
Interest-earning investments are generally recommended as a primary component of all retirees’ investment portfolios because of the steadiness of the income and the safety of the sources for that income—in fact, many interest-bearing investments are insured by the government through the Canada Deposit Insurance Corp. (CDIC), so there’s no risk whatsoever of loss. This is not the case for market-based investments, which can rise or fall, or even collapse to nothing.
“The role that fixed-income plays going forward is really as a diversifier,” says Les Grober, senior vice-president and head of asset allocation with IG Wealth Management. “One of the big reasons investors still want to own bonds in their portfolio is that the correlation between bond prices and stock prices is still negative. As a result of this weak or low correlation, from a diversification standpoint, owning bonds in your portfolio can reduce its overall volatility.
“Bonds still provide a safe haven,” Grober says. “They’re there to preserve capital and to provide diversification benefits and dampen down one’s volatility in a portfolio. That’s a significantly different role than what they’ve played in the past.”
Many Retirees Still Working
Retirement is supposed to mean freedom from work, at least in theory, but in practice a great many of us are still earning work income beyond age 65, sometimes well beyond. Among those 5.9 million 65-plus returns, about 813,000 people declared an average of $36,234 each in employment income in 1995. And the male/female disparity here is particularly pronounced.
Men who worked after age 65 earned an average of $44,631, while women earned $25,083—45 per cent less. Furthermore, while women represented 54 per cent of the overall cohort, they represented only 42 per cent of those still working. In other words, proportionately more men than women were still employed after age 65, and they earned considerably more than their female counterparts.
Similarly, 233,890 of the 65-plus age cohort declared an average of $9,214.36 in net business income, with 145,710 men earning an average of $10,393.25, and 88,180 women earning an average $7,266.34 in 2015. In addition, 52,570 of the cohort earned an average of $40,802.57 in net professional income that year, with 37,120 men earning an average of $49,062.02 and 15,450 women earning an average of $20,958.51.
“For many people, the prospect of retirement can be daunting, whether it be emotionally or financially,” says Craig Hughes, director of advanced financial planning at IG Wealth Management. “The daily routine of going to work, building relationships, and finding purpose in their role can be something retirees miss. Continuing to work after age 65 can promote mental and physical well-being. Life expectancy continues to increase, giving individuals the flexibility to work a few more years in a job they enjoy, or to try something new, with the knowledge they may have many more years of retirement.
“Continuing to work also provides financial benefits,” Hughes says. “Ongoing employment income reduces reliance on other resources. It provides an opportunity to boost retirement benefits by taking advantage of the deferral bonus from OAS and CPP benefits, as well as contributing further and delaying withdrawals from pensions and retirement savings. As people live longer, this can significantly enhance the accumulation and sustainability of retirement income sources.” The result is a more comfortable retirement financially, with the satisfaction of leaving the workforce on your terms.
The CRA statistics reveal a number of other interesting and sometimes quite surprising facts about ourselves. For example, 336,620 people aged 65-plus earned an average $7,458 in net rental income (line 160 of the tax return) for 2015. That’s a lot of apartments, and a handy, risk-free source of added income for those who have the available space, either in their own homes or in separate properties.
Also of note, 102,870 people aged 65-plus, including 22,300 aged 80-plus, continued to earn income from farming in 2015, with the average net income being $5,825; almost a third of these people (32,160) were female, and 7,410 of these females were aged 80-plus. Given the rigours of farming for a living, there’s apparently something to be said for the value of clean country air and physical activity as you get older.
Perhaps even more surprising, 3,410 Canadians, 40 of them over 80, earned an average of $24,202 in fishing income for 2015. A recent investigation of workplace deaths from 2011 to 2015 conducted by the Globe and Mail with data from the Association of Workers’ Compensation Boards of Canada (AWCBC) and Statistics Canada found that fishing (along with hunting) is by far the deadliest occupation in the land (or on the sea, as it were).
While the total body count is much higher in large industries like transportation and manufacturing, the average fatality rate for traumatic injuries per 100,000 workers from 2011 to 2015 was tops—at 69.8—for fishery workers (primary causes cited were drownings and heavy equipment-related incidents), compared with 9 for transportation/warehousing and 2.1 for manufacturing. You’ve got to admire the strength, skills, and guts of these people, especially those over 80 and still at it.
Finally, 12,990 tax filers aged 65-plus claimed an average of $911.39 in Universal Child Care Credits (for kids under age 18) in 2015, while 940 claimed child care expenses (for kids under 16) averaging $2,154.26. Who says you’re ever too old to have kids (or in some cases grandkids) to look after?