Welcome to "Today's New Retirement"
Where your last day of work no longer means the beginning of your last phase of life.
As of July 1, 2013, you can defer drawing your OAS benefit until age 70, similar to the recent change to CPP. However, unlike CPP, you cannot take it earlier than age 65.
For each month you defer your OAS pension, it will increase by 0.6% or 7.2% per year. Total deferral to age 70 would be an increase of your OAS pension by 36%, indexed for life.
For the third quarter of 2015 the full OAS pension was $6,942.00 annually (indexed quarterly). If you wait until age 70 the pension would be $9,441.00 in today’s dollars. If you wait for one year (age 71) your OAS pension would increase 7.2% to $7,337.00 in today’s dollars.
The 2012 Federal Budget stated:
“The adjusted pension will be calculated on an actuarially neutral basis as is done with the CPP. This means that, on average, individuals will receive the same lifetime OAS pension whether they choose to take it up at the earliest age of eligibility or defer it to a later year.”
This means that if you live to age 82 you would receive approximately the same total OAS pension income, in today’s dollars, that you would receive at any start date from age 65 to age 70. You would receive fewer payments, but they would be for a higher amount. If you live past age 82, you would be ahead by starting at age 70. If you have poor health, the deferral choice may not be the right one for you.
When Bismark first introduced OAS pensions in Germany in 1889, pensions started at age 70, an age which only 3% – 4% of Germans at the time ever reached. When Canada’s OAS was introduced in 1952, pensions also began at age 70, when the average life expectancy in Canada was less than that. Currently, the eligibility age is 65 and the average life expectancy is approximately 82. This means that, on average, retirees collect OAS pension for 17 years.
Today many, if not most, 65 year olds are fit for work and many, including myself, want to continue working. For those working past age 65, many are losing some or all of their OAS benefit due to the OAS clawback. The clawback is a reduction in your OAS pension. Once your net income, in any year, exceeds the clawback limit ($72,809 for 2015), your OAS benefit will be reduced (clawed back), over the following year, by 15% of your net income that exceeds the OAS clawback limit. Capital gains also cause clawback of OAS. If you are planning to sell your business or trigger a large capital gain between ages 65-70, you may also want to defer your OAS benefit.
Impact on your Retirement Income Plan
As you can see, these changes, combined with the CPP changes, can have a great impact on your retirement income plan. These are indexed pensions – something most of us do not have any more. Your CPP/OAS decisions can add up to significant dollars, and become a major part of your base retirement income. If you have a spouse there is an even greater impact, and much more flexibility in your income planning.
So how does this affect your retirement income planning? Obviously your answer must be customized to your specific situation, taking into account your retirement life plan. I offer a no cost, no obligation review. The goal for this visit is to help you to maximize your entitled government benefits for your future. Please contact my office to establish a mutually convenient time.
Disclaimer: The information in this article is derived from sources including the Canada Revenue Agency website. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances.
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