Life after retirement has never been more flexible for those planning their financial future, especially when it comes to receiving Old Age Security and Canada Pension Plan payments.
Since 2013, anyone can defer their OAS and CPP payments to later dates and have more control over the look of their finances. For both programs, there are benefits to waiting to receive government funds, but there are also risks.
“You can defer receiving your Old Age Security pension for up to 60 months (five years) after the date you become eligible for an OAS pension in exchange for a higher monthly amount,” the Service Canada website says.
Read Also
Farming Smarter receives financial boost from Alberta government for potato research
Farming Smarter near Lethbridge got a boost to its research equipment, thanks to the Alberta government’s increase in funding for research associations.
For people who decide to delay receiving pension returns, their “pension payment will be increased by 0.6 percent for every month you delay receiving it, up to a maximum of 36 percent at age 70.”
Darcy Kendall, a chartered professional accountant with the Retiring Farmer, said he discusses deferrals with his clients so that they can get the most out of their benefits. Taking benefits becomes a matter of getting more later or getting less sooner, he added.
“The benefits for both programs increase the longer you defer to take it, so what it will come down to from a financial perspective is, do you want to get the absolute most out of the program long term, or if you want to have the money earlier at a period of time where you’d be able to use it and enjoy it a bit more?”
There are four things to consider when deciding when to begin participating in the programs, according to Service Canada: “Current and future sources of income; current and future employment status; health; and plans for retirement.”
Kendall said that based on his experience, the optimal age for using the program is 67, when most people would be able to enjoy their benefits.
“You’re not taking it early, which may reduce your overall benefits, but you’re also not waiting too long that you may not be able to enjoy it.”
For CPP, Canadians will pay into the program until they at least turn 65, whether they take it early or not, but can opt out of paying it any time after that until they are 70.
Since the calculations are based on the number of years a person has paid into CPP, there are provisions that account for factors such as raising children, said Kendall. This shows an inherent difference between the two programs because OAS is income tested at the time of taking the benefits, he added.
There are factors to consider when making this decision, especially the danger of clawbacks once income reaches a certain threshold, which causes people to have to repay certain portions of their income to counteract an increase. This can include factors such as capital gains and investments.
Deferring OAS while planning for retirement planning and liquidating assets allows people to get the best of both worlds while not needing to consider what clawbacks they will have to pay back.
Kendall said this means stressing the importance of planning with his clients.
“If you’ve got to restructure or you’re selling land or transferring assets, you want to get that all done before you start taking that benefit. If you do some of it after the fact, you may lose out on your OAS.”
With a strong CPP and OAS program in place, Kendall said most people will be financially sound at retirement time, no matter when they decide to take their benefits. It just becomes a matter of determining the optimal time for them.
People are able to cancel their OAS within six months of their first payment if they want to defer it for a later date, according to the Service Canada website. However, all amounts received have to be paid back within six months of the request. After that, the deferral process is the same in order to reapply.
No matter what people decide, planning for benefits is an important strategy.
