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Tag: retirement

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  • Retiring on Social Security Alone in 2026? Here’s the Monthly Income You May Be Looking At.

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    If 2026 is the year you’re planning to retire, you may have started the official countdown to that milestone already. But before you retire, it’s important to take a close look at your financial picture and make sure you’re truly ready.

    You may also want to reconsider a 2026 retirement if your only expected source of income once you stop working is Social Security. Let’s review what the average monthly benefit looks like today, and why you might need to supplement it.

    Image source: Getty Images.

    In November 2025, the average monthly Social Security benefit among retired workers was $2,013.32. Now that average benefit should increase once 2026 arrives, since Social Security is getting a 2.8% cost-of-living adjustment, or COLA.

    But the cost of Medicare Part B is also increasing. Seniors who are enrolled in Medicare and Social Security at the same time pay their Part B premiums out of their monthly benefits.

    If you’re new to Medicare, you’ll have to account for a monthly premium of $202.90 in 2026, which is what you’ll pay if you don’t have any non-Social Security income. If you’re not used to paying as much for healthcare now, that’s yet another cost you’ll have to factor in, and it could leave you with less Social Security than expected.

    So all told, you may not get much more out of Social Security in 2026 than $2,013.32 a month, or a little over $24,000 per year. That’s not a particularly generous income. So if you don’t have any savings, you may want to come up with another plan.

    If you’re looking at just Social Security for income once you stop working, one potential solution could be to delay retirement. Building up even a small IRA or 401(k) balance could give you more financial breathing room in retirement.

    Let’s say you manage to work an extra two years, during which time you’re able to put $12,000 into an IRA. That’s not going to leave you with a ton of extra money for retirement. But it’s still money you can dip into to deal with emergency or one-off expenses that your monthly Social Security checks may not be able to cover.

    For example, let’s say you own your home but it’s on the older side. You might have a year with a $3,000 repair. That small IRA could come to your rescue by covering the cost of that bill so you don’t have to worry about finding the room in your regular retirement budget.

    If you’re no longer able to keep working full-time, consider retiring in 2026 but shifting into part-time or gig work for extra income. The good news is that you’re allowed to work while collecting Social Security. And as long as you’ve reached full retirement age, you can earn any amount of wages without being subject to Social Security’s earnings test.

    If you haven’t reached full retirement age, you may have some benefits withheld if you earn too much. Those withheld benefits will then be paid to you later.

    In 2026, you can earn $24,480, or $65,160 if you’ll be reaching full retirement age within the year, without having any portion of your Social Security checks held back. So if you’ll only be working part-time, chances are, you’ll be able to stay below the threshold that applies to you.

    Retiring on just Social Security could mean setting yourself up to struggle financially for many years. If you’re able to delay retirement to build a small nest egg, it’s worth doing. If not, plan to keep working in some capacity to supplement those monthly checks.

    If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income.

    One easy trick could pay you as much as $23,760 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Join Stock Advisor to learn more about these strategies.

    View the “Social Security secrets” »

    The Motley Fool has a disclosure policy.

    Retiring on Social Security Alone in 2026? Here’s the Monthly Income You May Be Looking At. was originally published by The Motley Fool

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  • Top military lawyer told chairman that officers should retire if faced with an unlawful order

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    How should a military commander respond if they determine they have received an unlawful order?Request to retire — and refrain from resigning in protest, which could be seen as a political act, or picking a fight to get fired.That was the previously unreported guidance that Brig. Gen. Eric Widmar, the top lawyer for the Joint Chiefs of Staff, gave to the country’s top general, Joint Chiefs Chairman Gen. Dan Caine, in November, according to sources familiar with the discussion.Related video above: US military strikes on drug boats in Latin America spark legal concernsCaine had just seen a video that included six Democratic lawmakers publicly urging U.S. troops to disobey illegal orders. He asked Widmar, according to the sources, what the latest guidance was on how to determine whether an order was lawful and how a commander should reply if it is not.Widmar responded that they should consult with their legal adviser if they’re unsure, the sources said. But ultimately, if they determine that an order is illegal, they should consider requesting retirement.The guidance sheds new light on how top military officials are thinking about an issue that has reached a fever pitch in recent weeks, as lawmakers and legal experts have repeatedly questioned the legality of the U.S. military’s counternarcotics operations in the Caribbean Sea and Pacific Ocean — including intense scrutiny of a “double-tap” strike that deliberately killed survivors on Sept. 2.Caine is not in the chain of command. But he is closely involved in operations, including those in SOUTHCOM, and is often tasked with presenting military options to the president—more so than Secretary of Defense Pete Hegseth, CNN has reported.The Joint Staff declined to comment for this story.Several senior officers who reportedly expressed concerns about the boat strikes, including former U.S. Southern Command commander Adm. Alvin Holsey and Lt. Gen. Joe McGee, the former director for Strategy, Plans, and Policy on the Joint Staff, have retired early in recent months.Widmar’s advice to Caine was meant to help inform the chairman’s discussions with senior military officials should the issue come up, the sources said. The Democrats’ video had become headline news, enraging Hegseth and sparking debates across the country.A separate official familiar with military legal advice said that it is not uncommon for lawyers to urge servicemembers to consider leaving the force if they believe they’re being asked to do something they are personally uncomfortable with, but it’s typically handled on a case-by-case basis and tailored to the facts of the situation.Other current and former U.S. officials, however, including those who have served as military lawyers in the Judge Advocate General’s Corps, stressed that broadly encouraging servicemembers to quietly retire — if they’re eligible — rather than voice dissent in the face of a potentially illegal order risks perpetuating a culture of silence and lack of accountability.”A commissioned officer has every right to say, ‘this is wrong,’ and shouldn’t be expected to quietly and silently walk away just because they’re given a free pass to do so,” said a former senior defense official who left the Pentagon earlier this year.More than a dozen senior officers have either been fired or retired early since Trump took office in January, an unusually high rate of turnover. In a speech before hundreds of general and flag officers in September, Hegseth directed officers to “do the honorable thing and resign” if they didn’t agree with his vision for the department.But disagreeing with the direction of the military is different than viewing an order as illegal, legal experts said.Dan Maurer, a retired Army lieutenant colonel and former JAG lawyer, said that the guidance, as described by CNN, appears to “misunderstand what a servicemember is supposed to do in the face of an unlawful order: disobey it if confident that the order is unlawful and attempt to persuade the order-giver to stop or modify it have failed, and report it through the chain of command.”Maurer added that “if the guidance does not explicitly advise servicemembers that they have a duty to disobey unlawful orders, the guidance is not a legitimate statement of professional military ethics and the law.”Widmar advised that an order may be unlawful if it is “patently illegal,” or something an ordinary person would recognize instinctively as a violation of domestic or international law, the sources said — the My Lai massacre in Vietnam is an oft-used example. But the guidance he provided was that an unlawful order should be met with retirement, if possible, and did not note that servicemembers have a duty to disobey unlawful orders, the sources said.”It’s a very safe recommendation in this current political environment,” said the former senior defense official. “But that doesn’t make it the right or ethical one.”Experts on civil-military relations have previously pointed to retirement as a reasonable option for officers who object to a particular policy, while noting that it comes with its own costs.In a September article that has been discussed amongst the Joint Staff and other senior military officials, Peter Feaver, a political science professor at Duke University, and Heidi Urben, a former Army intelligence officer and current associate director of Georgetown University’s security studies program, wrote that “quiet quitting,” or opting for retirement “allows officers with professionally grounded objections to leave without posing a direct challenge to civilian control.”But while officers shouldn’t resign in protest or pick fights, they argued, they should “speak up” and “show moral courage” when the military’s professional values and ideals are at risk.And they should be willing to be fired for it. “Complete silence can be corrosive to good order and discipline and signal to the force that the military’s professional values and norms are expendable,” they wrote.Maurer, the former Army officer, said the advice to retire in the face of an unlawful order also functions to “keep that person silent in perpetuity, because as a retiree he or she remains subject to the Uniform Code of Military Justice, which criminalizes a broad range of conduct and speech that would be constitutionally protected for regular civilians.”Those constraints have been apparent as the Pentagon has launched an investigation into Sen. Mark Kelly, a retired Navy captain and one of the Democratic lawmakers seen in the video encouraging troops to disobey unlawful orders, which prompted Caine to seek legal advice.As questions continue to swirl around the legality of the boat strike campaign, Widmar also advised Caine that Article II of the Constitution gives the president the authority to authorize lethal force to protect the nation, unless hostilities rise to the level of a full-blown war, in which case Congressional approval is required, the sources said.Whether the president’s orders are legal to begin with, Widmar advised according to the sources, is a question only the Justice Department’s Office of Legal Counsel can answer, due to the executive order Trump issued in February that says the president and the attorney general’s “opinions on questions of law are controlling” on all executive branch employees — to include U.S. troops.The Office of Legal Counsel determined in September that it is legal for Trump to order strikes on suspected drug boats because they pose an imminent threat to the United States, CNN has reported.Since Sept. 2, the U.S. military has killed at least 99 people across dozens of strikes in the Caribbean and eastern Pacific, arguing that those targeted were “narcoterrorists” who pose a direct threat to the United States. The Trump administration has also not provided public evidence of the presence of narcotics on the boats struck, nor their affiliation with drug cartels.Lawmakers have said that Pentagon officials have acknowledged in private briefings not knowing the identities of everyone on board a vessel before striking it; instead, military officials only need to confirm that the individuals are affiliated with a cartel or criminal organization to target them.Some members of Congress, legal experts and human rights groups have argued that potential drug traffickers are civilians who should not be summarily killed but arrested —something the Coast Guard did routinely, and continues to do in the eastern Pacific, when encountering a suspected drug trafficking vessel.CNN’s Haley Britzky contributed to this report.

    How should a military commander respond if they determine they have received an unlawful order?

    Request to retire — and refrain from resigning in protest, which could be seen as a political act, or picking a fight to get fired.

    That was the previously unreported guidance that Brig. Gen. Eric Widmar, the top lawyer for the Joint Chiefs of Staff, gave to the country’s top general, Joint Chiefs Chairman Gen. Dan Caine, in November, according to sources familiar with the discussion.

    Related video above: US military strikes on drug boats in Latin America spark legal concerns

    Caine had just seen a video that included six Democratic lawmakers publicly urging U.S. troops to disobey illegal orders. He asked Widmar, according to the sources, what the latest guidance was on how to determine whether an order was lawful and how a commander should reply if it is not.

    Widmar responded that they should consult with their legal adviser if they’re unsure, the sources said. But ultimately, if they determine that an order is illegal, they should consider requesting retirement.

    The guidance sheds new light on how top military officials are thinking about an issue that has reached a fever pitch in recent weeks, as lawmakers and legal experts have repeatedly questioned the legality of the U.S. military’s counternarcotics operations in the Caribbean Sea and Pacific Ocean — including intense scrutiny of a “double-tap” strike that deliberately killed survivors on Sept. 2.

    Caine is not in the chain of command. But he is closely involved in operations, including those in SOUTHCOM, and is often tasked with presenting military options to the president—more so than Secretary of Defense Pete Hegseth, CNN has reported.

    The Joint Staff declined to comment for this story.

    Several senior officers who reportedly expressed concerns about the boat strikes, including former U.S. Southern Command commander Adm. Alvin Holsey and Lt. Gen. Joe McGee, the former director for Strategy, Plans, and Policy on the Joint Staff, have retired early in recent months.

    Widmar’s advice to Caine was meant to help inform the chairman’s discussions with senior military officials should the issue come up, the sources said. The Democrats’ video had become headline news, enraging Hegseth and sparking debates across the country.

    A separate official familiar with military legal advice said that it is not uncommon for lawyers to urge servicemembers to consider leaving the force if they believe they’re being asked to do something they are personally uncomfortable with, but it’s typically handled on a case-by-case basis and tailored to the facts of the situation.

    Other current and former U.S. officials, however, including those who have served as military lawyers in the Judge Advocate General’s Corps, stressed that broadly encouraging servicemembers to quietly retire — if they’re eligible — rather than voice dissent in the face of a potentially illegal order risks perpetuating a culture of silence and lack of accountability.

    “A commissioned officer has every right to say, ‘this is wrong,’ and shouldn’t be expected to quietly and silently walk away just because they’re given a free pass to do so,” said a former senior defense official who left the Pentagon earlier this year.

    More than a dozen senior officers have either been fired or retired early since Trump took office in January, an unusually high rate of turnover. In a speech before hundreds of general and flag officers in September, Hegseth directed officers to “do the honorable thing and resign” if they didn’t agree with his vision for the department.

    But disagreeing with the direction of the military is different than viewing an order as illegal, legal experts said.

    Dan Maurer, a retired Army lieutenant colonel and former JAG lawyer, said that the guidance, as described by CNN, appears to “misunderstand what a servicemember is supposed to do in the face of an unlawful order: disobey it if confident that the order is unlawful and attempt to persuade the order-giver to stop or modify it have failed, and report it through the chain of command.”

    Maurer added that “if the guidance does not explicitly advise servicemembers that they have a duty to disobey unlawful orders, the guidance is not a legitimate statement of professional military ethics and the law.”

    Widmar advised that an order may be unlawful if it is “patently illegal,” or something an ordinary person would recognize instinctively as a violation of domestic or international law, the sources said — the My Lai massacre in Vietnam is an oft-used example. But the guidance he provided was that an unlawful order should be met with retirement, if possible, and did not note that servicemembers have a duty to disobey unlawful orders, the sources said.

    “It’s a very safe recommendation in this current political environment,” said the former senior defense official. “But that doesn’t make it the right or ethical one.”

    Experts on civil-military relations have previously pointed to retirement as a reasonable option for officers who object to a particular policy, while noting that it comes with its own costs.

    In a September article that has been discussed amongst the Joint Staff and other senior military officials, Peter Feaver, a political science professor at Duke University, and Heidi Urben, a former Army intelligence officer and current associate director of Georgetown University’s security studies program, wrote that “quiet quitting,” or opting for retirement “allows officers with professionally grounded objections to leave without posing a direct challenge to civilian control.”

    But while officers shouldn’t resign in protest or pick fights, they argued, they should “speak up” and “show moral courage” when the military’s professional values and ideals are at risk.

    And they should be willing to be fired for it. “Complete silence can be corrosive to good order and discipline and signal to the force that the military’s professional values and norms are expendable,” they wrote.

    Maurer, the former Army officer, said the advice to retire in the face of an unlawful order also functions to “keep that person silent in perpetuity, because as a retiree he or she remains subject to the Uniform Code of Military Justice, which criminalizes a broad range of conduct and speech that would be constitutionally protected for regular civilians.”

    Those constraints have been apparent as the Pentagon has launched an investigation into Sen. Mark Kelly, a retired Navy captain and one of the Democratic lawmakers seen in the video encouraging troops to disobey unlawful orders, which prompted Caine to seek legal advice.

    As questions continue to swirl around the legality of the boat strike campaign, Widmar also advised Caine that Article II of the Constitution gives the president the authority to authorize lethal force to protect the nation, unless hostilities rise to the level of a full-blown war, in which case Congressional approval is required, the sources said.

    Whether the president’s orders are legal to begin with, Widmar advised according to the sources, is a question only the Justice Department’s Office of Legal Counsel can answer, due to the executive order Trump issued in February that says the president and the attorney general’s “opinions on questions of law are controlling” on all executive branch employees — to include U.S. troops.

    The Office of Legal Counsel determined in September that it is legal for Trump to order strikes on suspected drug boats because they pose an imminent threat to the United States, CNN has reported.

    Since Sept. 2, the U.S. military has killed at least 99 people across dozens of strikes in the Caribbean and eastern Pacific, arguing that those targeted were “narcoterrorists” who pose a direct threat to the United States. The Trump administration has also not provided public evidence of the presence of narcotics on the boats struck, nor their affiliation with drug cartels.

    Lawmakers have said that Pentagon officials have acknowledged in private briefings not knowing the identities of everyone on board a vessel before striking it; instead, military officials only need to confirm that the individuals are affiliated with a cartel or criminal organization to target them.

    Some members of Congress, legal experts and human rights groups have argued that potential drug traffickers are civilians who should not be summarily killed but arrested —something the Coast Guard did routinely, and continues to do in the eastern Pacific, when encountering a suspected drug trafficking vessel.

    CNN’s Haley Britzky contributed to this report.

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    The Argus Dividend Growth Model Portfolio

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  • Unlocking the Annuity Puzzle: Why Canadians avoid what seems to be the perfect retirement vehicle – MoneySense

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    Financial planner Robb Engen recently tackled this puzzle in his Boomer & Echo blog, “Why Canadians avoid one of retirement’s most misunderstood tools.” Engen notes that experts like Finance professor Moshe Milevsky and retired actuary Fred Vettese believe “converting a portion of your savings into guaranteed lifetime income is one of the smartest and most efficient ways to reduce retirement risk.” Vettese has said the math behind an annuity is “pretty compelling,” especially for those without Defined Benefit pensions.

    Milevsky and Alexandra Macqueen coined a great term applicable to annuities when they titled their book about the subject Pensionize Your Nest Egg, which I reviewed in the Financial Post in 2010 under the title ”A cure for pension envy?

    Engen observes that a life annuity is “the cleanest version of longevity insurance … You hand over a lump sum to an insurer, and they guarantee you monthly income for life. If you live to 100, the insurer pays you. If stock markets collapse, you still get paid. If you’re 87 and never want to look at a portfolio again, the income keeps flowing.”

    In other words, annuities neutralize the two big risks that haunt retirees: longevity risk (the chance of outliving your money) and sequence-of-returns risk, the danger of suffering a stock-market meltdown early in retirement and inflicting irreversible damage on a portfolio. 

    Despite all the seeming positives about annuities, Engen notes that “almost nobody buys one.” He cites a Vettese estimate that only about 5% of those who could buy an annuity actually do so. Engen suggests there is a behavioural hurdle: fear of losing liquidity and control of the underlying assets. He cites research by the National Institute of Ageing’s Bonnie-Jeanne MacDonald on pooled-risk retirement income, where she wrote that such retirees are  “strongly opposed to voluntary annuities, as they want to keep control over their savings.”

    Compare the best RRSP rates in Canada

    A chance to lock in recent portfolio gains?

    Even so, the new Retirement Club created by former Tangerine advisor Dale Roberts earlier this year (see the blog posted on my own site in June) recently featured a guest speaker who extolled the virtues of annuities: Phil Barker of online annuities firm Life Annuities.com Inc. 

    Barker said many clients tell him they’ve done really well in the markets over the last 20 years and now they’d like to lock in some of those gains. They may be looking for fixed-income strategies, and many were delighted with GIC returns when they were a bit higher than they are now (some in the range of 6-7%). But they are less happy with the new rates on GICs now reaching maturity. Meanwhile, annuities have just come off a 20-year high in November 2023 so the time to consider one has never been better, Barker told the Club in August. 

    With annuities, you can lock in a rate for the rest of your life—so if your timing is good, it may make sense to allocate some funds to them.  

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    Related reading: GICs vs. annuities

    Barker said eight life insurance companies offer annuities in Canada: Desjardins, RBC Life Insurance, BMO Life Insurance, Canada Life, Manulife, Sun Life, Equitable Life and Empire Life. All are covered under Assuris, a third-party organization that guarantees 100% of an annuity up to $5,000 per month. So if one of those companies failed, the annuity would be honored by one of the other firms via Assuris. 

    Barker described an annuity as simply a “personal-funded pension.” To set one up you can take registered or non-registered funds and send the capital to an insurance company. In return, they give you an income stream for as long as you live: this is the traditional life annuity. Unlike annuities in the U.S., you cannot add funds to an existing annuity, Barker told the club, nor can you co-mingle funds from for example RRSPs and non-registered funds. 

    However, you can buy a new annuity each time you need to. There is no medical underwriting for annuities, unlike life insurance. Joint annuities for couples are a great value, he said, but the tax slips are sent to the primary annuitant. Nor is income splitting possible under current CRA rules. 

    When annuities shine

    Annuities shine when you are confident about your health and prospects for living a long time. Having $X,000 a month assured income to live on means your other sources of income that fluctuate with stock markets can be weathered, Barker said. “We’re seeing people getting 6.5% to 8.5% a year for the rest of their lives, depending on their age.” 

    As Dale Roberts commented during Barker’s talk, having enough to live on just from the pension bucket (annuities, pensions, CPP/OAS etc.) frees you up to take some risk in other areas, like stocks and equity ETFs.

    Funding by registered vs. non-registered accounts

    Registered funds transfer to an annuity tax-free; that’s because money is not being deregistered, but rather going from one registered environment into another registered environment. It will be fully taxed when it comes out. The monthly income from the annuity is then fully taxable in the year it is received. 

    If you fund with non-registered money, the taxation is considerably different. For one, if your non-registered account has unrealized capital gains you’ll have to realize them and pay tax on them. Other than that, so-called prescribed annuities are relatively tax-efficient. The capital that is used to fund the annuity is not taxed, only the gain is, Barker says. “Therefore, the taxable portion of the annuity income is a very small amount. Prescribed means that the taxation is the same or level for the entire life of the annuity.”

    The Club has also covered other retirement income products that may resemble annuities in some respects: the Vanguard Retirement Income Fund (VRIF) and the Purpose Longevity Fund, both of which I have small chunks in. Dale adds that the Longevity Fund has the potential to be a “nice complement to annuities,” as it “is designed to increase payments quite nicely in the later years thanks to the mortality credits. Those with very long lives are subsidized by those who pass away much earlier.”

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    Technical Assessment: Bullish in the Intermediate-Term

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  • Jason Kelce Gives Travis Advice On Possible Retirement After Brutal NFL Defeat Left Him Heartbroken – Perez Hilton

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    Jason Kelce is doing what big brothers do best — giving advice to his little bro.

    We’ve all seen Travis Kelce‘s season with the Kansas City Chiefs this year unfortunately go downhill. They started off really rocky, and ended with a historically bad outcome. They didn’t make it to the playoffs for the first time in over a decade. On top of that, their star quarterback Patrick Mahomes got a season-ending ACL injury. It’s just been one hit after another.

    Of course, rumors have been swirling for a while this may be KillaTrav’s last season in the NFL. We mean, he’s got a lot of new ventures ahead of him! His wedding to Taylor Swift, his pivot into the entertainment industry with his appearances in things like Happy Gilmore 2 and Grotesquerie… There’s no doubt he’s got something good up ahead in life! But before he makes the big decision to leave behind football forever, Jason has a word of advice.

    Related: Travis All In His Feels While Addressing Chiefs’ Devastating Loss To Texans

    During an appearance on Monday Night Football this week, he was asked about his little brother’s possible retirement, to which the former Philadelphia Eagles player said:

    “I’m curious [as to how Travis will approach this], too. In my opinion, to nail that decision, you have to step away from the game for a little bit. Play these last three games, enjoy them with your teammates, enjoy them with your coach. The team’s gonna be different whether you come back or not next year, so enjoy these three games.”

    Smart! Stay in the present, don’t spend all your time focusing on the future. Jason continued:

    “Let it sink in. It’ll come to you in time. There’s so many emotions with this game, especially after a season that went the way this one went. It’s been so up and down … Right now, it’s just too fresh. You gotta step away from it. You gotta think about it. And then, it’ll come to you.”

    See the clip (below):

    That’s some solid advice! And who better to take it from than your own brother, who also went through this very thing not too long ago?

    We wish Travis luck on this big decision, we’re sure he’ll make the best one for himself and his future. Thoughts, Perezcious readers?

    [Image via MEGA/WENN]

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    Analyst Report: CMS Energy Corporation

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    Analyst Report: Royal Bank of Canada

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    Technical Assessment: Bullish in the Intermediate-Term

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  • Making the most of the pension tax credit – MoneySense

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    Having said that, this tax credit is not a big deal for most people, and in some cases, you will be better off not converting an RRSP or LIRA to a RRIF or LIF to qualify for the credit. 

    In 2025, the maximum federal tax savings is $290 (for my calculations, read on). There is a little more in savings when you apply the provincial credit, which varies by province. In Ontario, the additional tax saving is $89. That means the total tax savings for everyone in Ontario is $379, assuming they are paying at least $379 in tax. If you can’t use the full credit, you can transfer what you can’t use to your spouse.

    Mind the new tax rate

    As a reader, Sylvain, you may have read that the maximum federal tax savings is $300 and not the $290 stated above. That was true in previous years, but the lowest federal tax rate was reduced this year from 15% to 14%. The rate didn’t come into effect until the end of June, or halfway through the year. Therefore, for 2025 the lowest federal tax rate and pension tax credit is 14.5%. Next year they will both be 14%. 

    The other thing to keep in mind is that claiming the $2,000 pension tax credit is not a way to get $2,000 out of your RRIF/LIF tax-free, something I often hear. Well, okay, it almost is if you are in the lowest tax bracket.  

    Doing the math around the pension tax credit

    Think about the way the tax credit works. For the federal $2,000 tax credit, a rate of 14.5% is applied and the tax savings is $2,000 x 14.5% = $290. A rate of 5.05% is applied to the $1,762 Ontario credit for a tax savings of $1,762 x 5.05% = $89. The two combined come to a tax savings of $379.

    Now think about what happens when you draw $2,000 from a RRIF or LIF. If you are in the lowest tax bracket in Ontario, with a marginal tax rate of 19.55% (14.5% federal + 5.05% provincial), you will pay $2,000 x 19.55% = $391 in tax. When you apply the pension tax credit savings of $379, you end up paying only $12 in tax on the $2,000 withdrawal. If the Ontario pension tax credit was $2,000 rather than $1,762 then it would have been a wash with no tax owing.

    The story is different for a person in the highest tax bracket with a marginal tax rate of 53.53%. A $2,000 RRIF or LIF withdrawal will result in $1,070 in tax before applying the credit, and $681 in tax after the pension tax savings of $379. A person with an income of about $100,000 will pay about $240 in tax after the credit is applied.   

    This leads to the next question for the person who is only drawing the $2,000 to get the pension tax credit. Does it make sense to draw the money and reinvest the lesser after-tax amount, or would it be better to leave the full $2,000 in the RRIF or LIF to grow?  This becomes a planning question. What are your spending and gifting plans?

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    What the pension tax credit is good for

    Have I pelted you with enough math, Sylvain? You are right to think about ways to minimize the tax you owe and there are times when you can claim the pension tax credit before the year you turn 65.  

    The most familiar way you can claim the pension tax credit before age 65 is when you are receiving income from life annuities from superannuation or employer pension plans. You can also claim the credit if you are under age 65 and are receiving pension payments as the result of the death of a spouse who was eligible for the pension tax credit. In other words, if your spouse is over age 65 and drawing from a RRIF and then dies, you can claim the pension tax credit on that continued income even if you are not yet 65.

    Another advantage of the pension tax credit comes with the ability to split pension income. If you have a defined-benefit pension plan you can split your pension income with your spouse before age 65. In this case both of you can claim the pension tax credit, even if you are both under 65. The same is true with RRIF or LIF income after age 65, assuming you are both 65 or older. Instead of claiming a $2,000 pension tax credit, the two of you can each claim the $2,000 credit. Two credits for one pension!

    Thanks for your question, Sylvain. Some people automatically convert RRSPs or LIRAs to RRIFs or LIFs to qualify for the pension tax credit without really thinking about it.  

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    About Allan Norman, MSc, CFP, CIM


    About Allan Norman, MSc, CFP, CIM

    With over 30 years as a financial planner, Allan is an associate portfolio manager at Aligned Capital Partners Inc., where he helps Canadians maintain their lifestyles, without fear of running out of money.

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    Allan Norman, MSc, CFP, CIM

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