According to the widespread perception, the tax authorities eats up most of the supplementary work income of retirees. Without this burden, experienced workers would stay in the labor market longer.
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Do you share this perception? If this is the case, you have to readjust your flutes, friends, because this perception has become false in recent years, concludes an analysis carried out by Professor Luc Godbout and his team, from the University of Sherbrooke.
And even retirees who work part-time today often keep more money in their pockets, once all charges have been subtracted, than the youngest who make the same income, believes Luc Godbout.
Incredulous? You would be right to be if we were in 2012, that is, before the introduction of the Quebec tax credit for experienced workers. But over the years, this career extension credit has been enhanced, so much so that today, older workers are blessed by the tax authorities, so to speak.
The study released last spring was produced at the request of the 45+ Advisory Committee. It compares 28 different profiles of elderly taxpayers who receive a salary in addition to their retirement income. As I was also incredulous, I asked Luc Godbout to complete the study by comparing the situation of the elderly with that of the youngest for the same additional work income.
The scenarios apply to retirees who return to work part time while continuing to pocket their retirement income. Or to workers who choose to reduce their workload and supplement the shortfall with benefits from their various pension funds, essentially.
The first set of results is clear. In 23 of the 28 cases analyzed, these experienced workers retain more than 60% of the new earned income. You may judge that the 40% lost is synonymous with a lot of taxes, but you should know that social charges represent about a fifth of the additional sums deducted from the pay, sometimes more, than one thinks of the contributions employment insurance, the RRQ and all the rest.
The winners, so to speak, are the working poor. Take the case of a 65-year-old restaurant employee who will receive retirement income of $ 20,000 (federal pension, guaranteed income supplement, pensions from Retraite Québec). And let’s assume that he will continue to work, but part-time, earning $ 5,000 in employment income per year.
According to the study’s simulations, this person will keep 89% of the $ 5,000 in extra salary after taxes and payroll taxes are collected. Still not worse, right?
For a 65-year-old couple who earn about $ 30,000 in retirement income and continue to pocket $ 10,000 for part-time work, the employment income retention rate is around 70%.
This income retention rate decreases with the increase in wages, since then eligibility for various credits and benefits (solidarity credit, guaranteed income supplement, etc.) falls. All the same, a 65-year-old employee who has made a career in the industrial sector, for example, and who would receive $ 47,000 with the various pension funds, is able to keep 63% of a part-time salary of 15 $ 000.
This 63% retention rate of new earned income is similar for a teacher who continues partially past 61 or a 65-year-old accountant who taps into RRSPs for retirement and continues to work part-time.
Yes but, you will tell me, these retired workers will still keep less than their non-retired colleagues who would make the same extra income, right? Not really, still calculates Luc Godbout, who made the comparison with four cases this time.
Thus, three times out of four, experienced retired workers keep more money in their pocket than younger workers who earn the same additional income.
In the case of the teacher, for example, the retention rate of $ 20,000 of additional work is 63% versus 56% for a younger teacher.
Only one of the four cases analyzed is unfavorable to the elderly. In doing so, we can think that for retirees who make large incomes, the rate of retention of employment income is lower than that of young people.
Thus, when a 65-year-old worker who receives $ 70,000 in retirement pensions works part-time and adds $ 20,000 in salary to his income, he retains 60% after the various deductions, against 63% for a worker of under 60 who would add the same additional income. The difference is not that huge, though.
Taxation is very complex and the analysis therefore does not cover all possible cases. For example, a self-employed psychologist explained to me that it has become unprofitable to work part-time because of the high fixed costs (telephone, insurance, professional order, municipal taxes, etc.).
“I stopped working to my great regret,” explains Jean Bazinet.
The fact remains that for a retiree from the middle class, who earns less than $ 60,000 in income per year, earning additional income often appears to be more advantageous than for younger colleagues.
Yes, some seniors no longer want to know anything about work, but others would gladly accommodate themselves to a less heavy task. And now, it appears that the tax rules encourage this back-up work in Quebec. So much the better if it can alleviate the labor shortage a little.