Age 65 is one of those milestones most Canadians accept either happily or not but is softened somewhat by the eligibility to receive some of your tax money back in the shape of Canada Pension Plan and Old Age Security OAS benefits.
Depending on how much of a betting person you are and how long you think you are going to live, you have the option of taking your CPP as early as 60 or delaying it into the future at age 70. The earliest you can draw OAS is 65 but you can now delay taking it up until age 71.
The consequences of taking one option or the other are interesting. If you decide to pull the CPP trigger at 60, your CPP will be reduced by 36 percent. Before the March 2012 budget, the reduction was only 30 percent, but in an effort to shore up CPP funding, the government decided this was too rich and upped the ante to the larger claw back. You could take your pension at age 61, 62, or 63 and for each year you wait the 36 percent discount is reduced 7.2 percent.
If you are feeling lucky or have a sturdy belief in your longevity, you can delay taking your CPP and OAS 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.
Based on Statistics Canada and various insurance company actuarial calculations of predicted payouts to the Canadian population, the decision to take the lower pay of CPP at 60 or OAS at 65 versus a higher amount at 70, over one’s lifetime, you reach 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 years, 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 years of age, then drawing CPP and OAS can be delayed until after 70 to your benefit.
If you have just begun to receive your OAS you can opt to cancel your OAS within six months of receiving your first payment to take advantage of the deferral. The one condition, however, is you must repay all the OAS you received over the period (GIS is also included in the repayment if received). It should be noted that even if OAS was received (or eligible) before July 1, 2019, the deferral calculation commences at July 1, 2019.
Since we are talking about age, please remember that if you turn 71 this year, you must collapse your Retirement Income Savings Plan. 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 or tax specialist to decide when the best time is for you to receive CPP and OAS.
A financial adviser can also help you with deciding how best to receive retirement income from your RRSP.
Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: firstname.lastname@example.org or 800-265-1002.