Retired and working: is it worth it?

By : Yann Fortier

Labour shortages, inflation, longer life expectancy, a simple desire to stay active . . . there are various reasons why people choose to continue working or to return to the workforce. However, it’s common belief that doing so is just not worth it financially. Myth or reality?

Let’s go over some related issues with Luc Godbout, tax advisor and Chairman of taxation and public finance at Université de Sherbrooke.

His first observation? The employment rate for 20-59-year-olds is higher in Quebec. For the 60-64 and 65-70-year-old age groups, however, there is a significant drop and gap. “In Quebec, people retire a little earlier than in the rest of Canada.”

The phenomenon is amplified by two factors: “Quebec had a more pronounced baby boom than other provinces.” As such, in the 80s and 90s, in anticipation of employment obstacles for future generations, successive governments encouraged baby boomers to move up their retirement—with the average retirement age dropping as low as 58.4 in 1990!

Another factor affecting retirement age is the unionization rate: “Generally speaking, their retirement plans are more beneficial to early departures than for other workers. This is true everywhere in Canada, but even more so in Quebec,” Godbout says.

How can we turn this around?

According to Godbout, by bringing workers back to the workforce and delaying their retirement. But it needs to be profitable!

“Contrary to popular belief, governments have been encouraging people to return to work for several years now. So yes, it is worth it.” – Luc Godbout, tax specialist and professor

Because hard work should pay off

Godbout and his colleagues analyzed the taxation and incentives, and devised case studies showing that, regardless of the situation—for instance, low-income individuals who only collect minimum sums from the government or specialists with generous RRSP plans—working remains more profitable, even after age 65.

With this in mind, Godbout reports that, since the turn of the century, government initiatives have multiplied—enough to debunk certain myths and legends. And new measures will no doubt emerge in the coming years. According to the expert, the challenge lies in better informing and reassuring current and future retirees.

Other incentives to come?

In 2020, Godbout wrote a research paper entitled Travailler au-delà de l’âge de la retraite : est-ce que ça vaut le coût? (Working beyond the age of retirement : is it worth the money? – in French only), at the request of Comité Consultatif 45+.

Filled with examples and case studies, the document looks at the income retention rate. This represents the employment income rate retained by taxpayers.

Take, for instance, a retiree looking for an annual employment income of $10,000. If their available income increases by $7,500, their employment income retention rate (in this case, $10,000 in revenue) would be 75%. In other words: if you work for $10,000, you’ll have $7,500 left after taxes and other social charges.

The table below shows various retention rates (%) based on the different situations and employment income earned.

Source:  Travailler au-delà de l’âge de la retraite : est-ce que ça vaut le coût? (Working beyond the age of retirement : is it worth the money? – in French only)

Godbout says that the current reality should not hinder the implementation of additional incentives, such as tax deductions or tax credits:

Making the tax credit for career extension refundable.

In certain low-income situations, some eligible individuals may not be entitled to the entire credit due to a lack of sufficient taxable income.

Giving individuals over 65 years of age the choice to stop or continue to contribute to the Quebec Pension Plan (QPP).

With the Canada Pension Plan (CPP), Canada’s version of the QPP, workers can stop contributing as of age 65. This is not the case in Quebec.

An even more golden age?

In the meantime, given that the scenarios are as vast as the taxation world itself, speaking with specialists, such as the advisor of your financial institution, an accountant, or a tax specialist could help you make informed, more profitable decisions based on your situation, needs, and income.

In conclusion, Godbout suggests workers speak with their employer about adjusting source deductions early on “not to pay things unnecessarily and to avoid paying too much in taxes.”