Working After Retirement in Canada

More and more Canadians are now working after retirement in some capacity. The idea of the traditional final office party, gold watch, and chair on the beach appears to be less and less fulfilling than many had hoped.

That doesn’t mean a lot of us want to work the same job OR the same hours as we have been in the recent past. It simply means that more common to gradually transition from full-time work, to part-time work (often in a different workplace or job altogether), and then to a “full-stop retirement” at a later age – or when health makes the decision for us.

Since writing my course on planning your own Canadian retirement (you can check it out by clicking here) I have answered hundreds of questions about working while retired in some capacity. Usually it involves making the jump from their previous long-term grind, to a more passion-based project with less time commitment and mental stress. The three questions I often get are:

• Can you collect a pension and still work in Canada?
• Is it worth working after 65?
• How much can I earn while collecting CPP and OAS?

But you might be thinking to yourself:

I thought the whole point of retiring was to get away from work?

Maybe you just need to retire from your current work?

There are three really good reasons that you might want to think about some kind of work in the 5-15 years after you retire.

1) The sequence of returns risk that we looked at last unit shows just how important the first 5-10 years of retirement income are. If the stock market hits a rough patch, part-time work can be a massive help in terms of allowing your investment portfolio to “hang on” until the good times come.

2) In our first unit we talked about David Blanchett’s “Retirement Smile” and how retirement spending needs tend to be at their peak when we first retire (and then again right near the end of life). In order to make that first part of retirement all that you dreamed it would be, a little extra income (over and above your CPP/OAS/4% rule plan) might come in really handy.

3) It will likely improve your health.

In 2019 Jonathon Chevreau, Mike Drak, and Rob Morrison wrote a book called Victory Lap Retirement. If you’re considering some sort of a “transition zone” between your current high-paced 40+ hours week career – and then zero-hour-per-week retirement – I would highly recommend checking it out. Chevreau et al., not only bring their financial expertise to bear, they are also speaking from personal experience as the authors have all eagerly embraced part-time work after retiring from their 9-to-5s.

They begin by saying, “The media and even the financial industry have been telling us the wrong story; a happy retirement is not simply about ceasing to work.  In fact, most retirees today don’t want to spend the remainder of their days just sitting on a beach relaxing or out on the golf course. 

They don’t want to quit and not work because, after a lifetime of working, that feels unnatural to them […] Victory Lap Retirement refers to a new stage of life between the traditional salaried, “primary” career, and the end-game “full-stop” retirement […] A Victory Lap is a complete, all-round lifestyle that each personal designs for himself or herself.  The idea is to create an ideal blend of work and play.”

The authors point out the literal definition of the word “retire” is to “withdraw, to retreat, to shut oneself away,” and they then go on to illustrate the first-hand benefits they’ve seen from part-time work in retirement including:

• Keeping your brain and body active
• Earning a “playcheck” (“fun money” to chase dreams and small luxuries with)
• Following payable passions without worrying much about wage comparisons
• Potentially fun perks of new gigs

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Working Part-time in Retirement Advantage and Disadvantages

In a perfect world, maybe you’re approaching retirement in a workplace that you love, doing something that is challenging and rewarding every single day – you just don’t want to put in those long work weeks anymore. 

Given the relatively tight job market out there, you might have more leverage than you think. You might think about proposing a transition plan to your boss. Maybe more work from home days are available, or simply cutting down the hours to a more manageable 20 per week would make a big difference for you.

Unfortunately there are a lot of folks out there who just aren’t in love with their job anymore. For those people, I think the idea of taking a lower-paying part-time job is often ignored due to an illogical mix of status, inertia, ego, etc. 

If you’re approaching your retirement and you’re getting close to a point where your retirement paycheque puzzle and investment portfolio are lining up pretty well – then looking for a part-time gig as both a lifestyle choice and a safety-income make a lot of sense. You might even be able to negotiate a nice little severance payment on your way out the door, as it’s probable that your company will be able to save money by replacing you with a younger/cheaper employee.  

Here’s a few ways to look at some of the math involved in working part-time during the first part of your retirement.

1) You don’t have to earn a lot to make a difference. Even working two days per week (16 hours) at $20 per hour, 40 weeks per year would make you $12,800 per year. Because you’re retired, that money is probably going to be taxed at a low rate. If we estimate 10%, that’s still over $11,500 in your pocket.

2) If both you and a spouse decide to embrace part-time work, the simple math above says that $23,000 might come in pretty handy. It also might help ease the transition to “we’re both retired and at home” life that some find to be the cause of a bit of friction. 

3) $11,500 per year could allow you to postpone taking your CPP (and maybe even OAS) – thus creating a larger inflation-indexed worry-free future payment for yourself.

4) If you have a private defined benefit pension, the same math as that of CPP and OAS might apply. You can either choose to start taking your pension and live an increased lifestyle immediately, or it’s quite likely that every month that you delay taking your defined benefit plan results in a higher monthly payment once you start receiving your pension.

5) If the stock and bond markets went down like we saw in 2022, you could decide to begin taking your CPP (and/or OAS) and use your “Victory Lap Playcheck” to replace a chunk of your portfolio withdrawals.  Having this variability can really help address that pesky sequence of returns risk that every retiree worries about in their first few years. 

It also makes it very probable that at some point in your retirement, you’ll be able to withdraw substantially more than “the 4% + inflation rule” that we learned about last chapter, as you’re taking the biggest risk (a really bad first few years in the markets) off the table.

6) If you have had a career in a very physically- or mentally-stressful job, it could easily be the case that it’s actually costing you money to work when you consider long-term health costs. Nevermind the obvious health benefits, you might be financially further ahead to leave your job immediately if it allows you to avoid costly forced leaves from the general workforce, and/or having to make all of the purchases associated with deteriorating health. 

Working After Retirement in Canada Means Living Longer

I have to admit that I was shocked at the abundance of data that shows the strong link between working later in life, and general health – as well as increased life expectancy.

Maybe I just talk to too many stressed out teachers!  

Here’s a quick whiparound a few academic studies that looked at the connection between more years in the workplace and overall longer lives.

• In 2005, a study looked back on Shell Oil employees who retired between 55 and 65 during the years between 1973 and 2003.  It found that those who retired at 55 died sooner than those who worked all the way until age 65.
• Chenkai Wu revealed in this Harvard Business Review article that working in some capacity past age 65, significantly increased life expectancy.  His findings were based on a longitudinal study of nearly 3,000 Americans.  Although he goes on to state, “The 11% lower death rate is the population average. It may not apply to any one individual. There are certain groups of people who are sick of work and just want to retire as early as possible. For them, doing so might be beneficial.”
• Neurologist Daniel Levitin wrote a book in 2020 called Successful Aging: A Neuroscientist Explores the Power and Potential of our Lives.  He writes, “Too much time spent with no purpose is associated with unhappiness.  Stay busy!  But not with busy-work or trivial pursuits, but with meaningful activities.”
• A 2015 study done by the CDC looked at over 83,000 adults in the US.  It found that people who worked past the age of 65 were three times more likely to report being in good health, and half as likely to have serious problems such as cancer or heart disease.
• Andrew Hallam points to the Japanese cultural norm of delayed retirement as a key to their legendary longevity.

To be fair, not all the data leads to the conclusion that we are ALWAYS better off retiring late.

One study of Dutch civil servants found a slight correlation between retiring “early” at age 55, and increased lifespan. Of course, that’s a study exclusively of a very select group of people who would have had substantial private pensions to “retire on” – and it doesn’t adjust for any part-time work or gig work that these folks did after they left.  

I think the most accurate way to to talk about work, retirement, and health, would be to say that in general:

• The majority of long-term studies show a strong link between working at least up to age 65 – and in many cases after 65 – and increased life expectancy, as well as decreased risk of serious disease.
• The key causation factor probably isn’t earning a paycheque (although that certainly helps) but rather keeping your brain and body busy – having a clear purpose.
• Working in a job that causes a lot of stress isn’t likely to make you healthier.  People in stressful work environments, who have put some money away, are in the ideal place to begin planning a “Victory Lap” style where they transition from full-time to more rewarding part-time employment.

Working After Retirement FAQ

Can I Work in Canada and Collect a Pension?

One question that a lot of folks have as they approach retirement, is how does working (either full-time or part-time) after they retire affect their pension?

The short answer is: Nothing.

The long answer is: You can still begin receiving “your pension,” – whether that phrase refers to your private defined benefit pension or your CPP/OAS – but you might not want to because of increased tax rates and the ability to smooth your income out a bit more over time.

There is no law against earning an income as you receive a private pension or CPP/OAS.  But remember that pension payments do count as taxable income.  You might be better off delaying your pension payments (refer back to the CPP and OAS units for all of the reasons I’m such a fan of delaying pensions) and then enjoying larger monthly amounts coming to you later in retirement (when you might want to scale back even more).

That said, if you have a plan in place that involves receiving a pension while you work – and the pieces all fit together when it comes to your long-term plan for generating your overall retirement paycheque – then there is nothing wrong with working as you collect a pension.

Example: Part-time Work “Playcheque vs CPP Deferral”

Let’s say that Monica and Jaime are married, and are both turning 65 this year. They both work stressful jobs and are quite certain they don’t want to continue with their particular 9-to-5 grind anymore. Both Monica and Jaime are open to the idea of part-time work, providing it’s not the same job they did before they retired and the new work won’t include a lot of managerial responsibility. They also see nothing  at all wrong with completely pulling the plug and enjoying a work-free life, as they have several volunteer opportunities that they could both enjoy.

After completing the first two steps of the Worry-Free Retirement course, they know that as a couple they:

• Want to create a minimum retirement paycheque of about $75,000 before taxes – but could also see some added enjoyment by spending a bit more in their first years of retirement.
• Have no private defined benefit pension.
• Have roughly $850,000 in investable assets, which can generate $34,000 annually, using the 4% rule.
• Will have a combined annual maximum OAS payment at age 65 of $16,500.
• Will have a combined annual CPP payment of $21,600.

Monica and Jaime could do the simple thing: Retire at 65, begin collecting OAS and CPP, and then use their investment nest egg to generate $34,000 per year. That all adds up a pre-tax income of $72,100.  At this point, the couple could go back and decide to reduce their spending in a certain area, or perhaps take on some part-time work in order to increase their income. 

If they each worked 8 hours per week, 40 weeks per year, and earned $20 per hour, they could add a combined $12,800 to their pre-tax income. If roughly $3,000 of that money went to covering their minimum retirement paycheque estimate, that would leave them with nearly $10,000 of “playcheque” money.  It would also mean, though, that when part-time work was no longer an option, the couple would have to cut expenses to less than $75,000.

Alternatively, if either Monica or Jaime were to defer their CPP until age 70, the combined annual CPP income in today’s dollars would jump up to somewhere around $26,000. What that would mean, is that for the next five years, the couple would have to make do with only $10,800 in combined CPP income (since only one of them would be collecting their CPP payment). That would bring their pre-tax income down to $61,100.  If both Monica and Jaime took the same part-time jobs as the scenario above, their new pre-tax income would be nearly $74,000. That’s very close to their retirement paycheque goal, and they could decide to work a few more hours or cut back a little from there.

The payoff on that later scenario though, is that when Monica and Jaime turn 70 and begin collecting the increased CPP payment, their new pre-tax income would be $76,500 in today’s dollars.  That money would be inflation protected and very safe. 

Of course, deferring the CPP isn’t all-or-nothing.  Maybe a delay until 68 or 69 makes more sense for them?

Maybe Monica and Jaime like working part-time more than they expected, and they feel no increased hardship at working forty 15-hour weeks per year. That bumps their work income up to $12,000 each and leaves them with the ability to add some nice “playcheque” luxuries to their early semi-retired years or to enjoy more CPP-provided lifetime benefits.

CPP Contributions and Payments If You Keep Working

Of course, when it comes to government and pensions, very little is straightforward. 

If you opt to begin collecting your CPP – AND you continue to work – you will begin to accrue what the CPP program calls Post-Retirement Benefits (PRB). PRB considerations were set up in 2012 to address this exact scenario of working while receiving CPP payments. You can opt out of making these extra payments, but there is pretty solid value there in terms of building guaranteed income in your later years and protecting yourself against worst-case scenarios.

Now, there is a unique quirk to the CPP rules wherein if you were all set to collect a maximum CPP payment at age 65 – but elected to defer your payment to age 70 – you will end up making CPP contributions that won’t actually help you at all. In other words, you’ll be contributing to the CPP program every year from age 65 to 70 – but not getting any extra benefit from it. 

 So if you fall into that situation, make sure and opt out of making CPP contributions as you go back to work using this form called the CPT30.

Is Working After Retirement Right for Me?

A few questions to ask yourself in regards to if working after you retire is a good fit. I generated these questions after talking to many Canadians who were trying to weigh the pros and cons for their specific situation. Depending on what sort of value you place on each of these variables, the right decision can look much different for each person (and very little is determined by math).

1) How much do you enjoy your current job?  What is “one more year” worth when it comes to increased savings vs the freedom of retirement?

2) Does the idea of part-time work in a specific new job excite you?  Perhaps it’s more hobby- or passion-driven?  Brainstorm some ideas and do a quick online search for realistic employment possibilities and/or relevant compensation numbers.

3) Do you have skills you believe could translate to other jobs?  Jotting down a quick inventory of your skillset might help you keep an eye out for opportunities as you enter your final years of employment. 

4) If you (and/or your spouse if applicable) choose to work part time after retiring from your careers, would you put a higher priority on earning “playcheque” money? Or would you defer CPP in order to guarantee future financial security?

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