Planning for retirement with little or no savings to draw on + MORE Mar 21st

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We’re thinking about moving to Mexico full-time when we retire. Where would we pay income tax on our monthly Canadian pensions?

—Marianna

Many Canadians dream of a retirement that includes travel abroad. Some even live abroad part of the year or most of the year or give up their Canadian residency entirely. 

In the case of Mexico, Marianna, a taxpayer is considered a resident of Mexico if they have a permanent home available to them in Mexico. If they have homes in both Mexico and Canada, the location of their centre of vital interests—their personal and economic ties—must be considered. This is a condition of the Canada–Mexico Income Tax Convention, a tax treaty that is like many others that Canada has entered into with other countries to establish tax rules between them. 

The courts typically refer to the residence article of the OECD Model Tax Convention when defining the centre of vital interests:

“If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer…

As I wrote in my previous column on Fred Vettese’s PERC, I’ve reached the age when my registered retirement savings plan (RRSP) will soon have to be converted to a registered retirement income fund (RRIF) and/or annuitized. I turn 71 in early April, which means I have until the end of December 2024 to wind up my RRSP. Thousands of baby boomers will be in the same boat as me this year, so this column shares what I’m learning about this process. 

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The latest you can receive your first RRIF payment

Here’s how Matthew Ardrey, senior financial planner at Toronto-based firm Tridelta Financial, sees RRSP-to-RRIF conversions: “By the year in which one turns 72, the government mandates that the taxpayer convert their RRSP to a RRIF and draw out at least the minimum payment. The minimum payment is calculated by the value of the RRIF on January 1 multiplied by a percentage rate that is tied to the taxpayer’s age…

Despite their best intentions, some Canadians, facing a variety of financial challenges throughout their working lives, are not able to save much towards retirement. It can be difficult to know how to manage in these circumstances, especially when so much of the financial planning advice that gets shared widely caters to wealthier people. 

Retiring with little to no savings can be challenging, but it is not impossible.

Canada Pension Plan (CPP)

For a retiree who has worked most of their life, the Canada Pension Plan (CPP) will provide a modest retire income. The CPP retirement pension is meant to replace 25% of your historical career earnings, up to a certain limit. The CPP enhancement that started in 2019 will gradually increase that replacement rate to 33% over time.

In 2024, the maximum CPP retirement pension payment at age 65 is $1,365 per month—that is up to $16,375 per year. However, most retirees do not make enough CPP contributions during their careers to receive the maximum…