Canada Pension Plan, Old Age Security options from 60 to 70

The longer you wait, the lower the claw back

Age 65 is one of those milestones that Canadians may have trouble accepting.

However, it is softened somewhat by eligibility to receive some of your tax money back in the form of Canadian Pension Plan and Old Age Security benefits.

You have the option of taking your CPP as early as 60 or delaying it until 70, depending on how much of a betting person you are and how long you think you are going to live.

The earliest you can draw OAS is 65, but you can now delay taking it until age 71.

The consequences of choosing one option or the other are interesting.

Your CPP will be reduced by 36 percent if you decide to pull the CPP trigger at 60.

The reduction was only 30 percent before last year’s federal budget, but in an effort to shore up CPP funding, the government decided this was too rich and increased the claw back.

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You can also take your pension at 61, 62 or 63 if you want, and the 36 percent discount will be reduced by 7.2 percent for every year you wait.

If you are feeling lucky or have a sturdy belief in your longevity, you can delay taking your CPP and OAS all the way to age 70.

For each year you wait, the government will add funds to your benefits to a maximum additional amount of 36 percent at age 70.

When deciding whether to take the lower CPP pay at 60 or OAS at 65 rather than a higher amount at 70, remember that Statistics Canada data and insurance company actuarial calculations of predicted payouts have found that the average Canadian reaches a break-even point somewhere above age 75. That means you only start to feel the loss of total income after that age.

So if you believe you will not reach the ripe old age of 76, then financial planners will recommend you draw your CPP and OAS as early as possible.

If, on the other hand, you believe you will live beyond 76, then drawing CPP and OAS can be delayed until after 70 to your benefit.

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You can opt to cancel your OAS within six months of receiving your first payment to take advantage of the deferral. However, the one condition is that you must repay all the OAS you received over the period. The Guaranteed Income Supplement is also included in the repayment if it was received.

It should be noted that the deferral calculation commenced July 1, 2013, even if OAS was received or eligible before that date.

Remember that if you turn 71 this year, you must collapse your retirement income savings plans. If you don’t carefully plan for this event, the government will consider the entire amount as income for this year and tax it accordingly.

Deciding when to receive government retirement benefits can involve complicated calculations, and no one decision is right for everyone. Be sure to talk to your financial adviser and tax specialist to decide when the best time is for you to receive CPP and OAS.

A financial adviser can also help decide how best to receive retirement income from your RRSPs.

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Grant Diamond is a tax analyst in Kelowna, B.C. with FBC, a company that specializes in farm tax. Contact: fbc@fbc.ca or 800-265-1002.

  • Carolyn

    I just turned 65 and I applied for CCP will I have retro for 11 months

    • If you just turned 65 and you just applied for CPP, then generally payments will be retroactive from when you turned 65.

  • Jeff

    If I take my cpp at 60 , as I age do I receive a adjustment towards my monthly cheque because of the 36% clawback that I endured because I took it right away? Or do I just receive the cost of living benefit?I thought that because I contributed my whole life I get some of that intial claw-back every year as time moves on?

    • The 36% reduction on the Canada pension plan payment is actually not a claw back but a reduction to your CPP payment for the rest of your life. It is the penalty for drawing pension early.

      The annual amount is indexed by the government based on the CPI index and will increase proportionally but it will always be 36% less than if you commenced CPP at age 65.

  • Ray

    Hi,

    I got my first OAS payment of $18.99 and CPP payment of $1012.00 on Oct 29 2013 after retiring in Sept 2013.
    I`m told it was based on my 2012 tax fillings.
    I believe my gross income for 2014 and 2015 will be around $100,000.00 due to some vacation payouts on Jan 1 2014 and Jan 1 2015.
    Should I defer OASntil 2015?

    • This is difficult to answer as there are many factors that would go into a decision to defer OAS only one of which would be the estimated gross income over your life time.

      Lifestyle, life expectancy, family medical history, retirement activity and other sources of revenue are other criteria that need to be considered when making this decision.

      I suggest you meet with a financial advisor to review your specific financial situation to ensure you’re making the right decision for you.

  • surinder

    I born in 1950. can I apply for oas?

  • lou

    I have taken my CPP when i was 60, am now 63 and still working. Should they still take CPP off my paycheck?

    • Hi Lou,

      Our HR person here at the WP says, “Absolutely they should.”

      According to her, your CPP contributions are mandatory until you reach age 65.

      Despite our HR person’s certainty, it would be wise to check with your accountant to be certain.

      Cheers,
      Paul – WP web ed