How to Supplement One’s Retirement Income
If you’re like other Canadians who, unfortunately, don’t have enough saved for retirement, the Canadian Home Income Plan (CHIP) could be a viable option to supplement your retirement income.
Statistics Canada estimates that, on average, 77% of seniors’ net worth is tied up in home equity, and most don’t think to access that home equity. Withdrawing some equity from your home through CHIP, however, is an excellent source for tax-free retirement income if you have an insufficient post-retirement cash flow or are short on retirement funds.
Withdrawing your home equity using CHIP is tax-free, because the money you are accessing is already after-tax dollars (you purchased your home with your net income, or after tax income). In addition, because using CHIP is just extracting money that is rightfully yours, it is not considered income and won’t bump you up to the next tax bracket or decrease your other retirement benefits, such as the Canadian Pension Plan (CPP) and Old Age Security (OAS).
You can set up your CHIP retirement income in a few different ways. One method is to simply receive periodic payments directly from CHIP (set up like an annuity) that will be paid to you until a pre-determined time. Another method is to receive the equity you have accessed through CHIP in a single, lump sum payment, and invest it or place it in savings and draw income out as you need it. You should speak to a financial planner to determine which option is best for you.
If you find yourself with less retirement savings than you’d like or would like to supplement your retirement income, and you own your own home, CHIP could be the solution for you.