Old Age Security, Do You Need To Take The Money Now?
Canadians who turn 65 begin taking their old age security (OAS). But do you need to take the money now that you turned 65? That is the big question! You have to take a look at the big picture and add all the cash flow elements that make up you retirement income.
Really it depends on your tax situation and your your ability to maximize your benefits. There are other factors like your Canada Pension Plan (CPP), and other sources of income you’ve been able to sock away.
Here are some thoughts that may help you with your decision of to take the money now…
Taking your old age security at 65
Why take OAS at 65? Recall that as of the 2012 budget, Ottawa rejigged the rules to tempt people to defer taking OAS until as late as age 70. With this “voluntary deferral,” for every extra month you wait after 65, you gain 0.6% a month, so if you wait until the bitter end at age 70 the result would be monthly OAS benefits 36% higher than if you had taken them at your earliest convenience. Note that this reward for deferring OAS is slightly less generous than CPP, where there’s a 42% bump for deferring CPP from 65 to 70.
Of course, the Conservatives planned to make younger people wait until age 67 before they could even start collecting OAS but the new Liberal government nixed this after the 2015 election, so as of now we can all collect OAS at 65 if we are so inclined and put in the requisite number of years of residency in Canada.
Why defer CPP but take OAS as soon as you can? For me, the big difference is OAS clawbacks. CPP and OAS both generate taxable income but only OAS benefits are clawed back if your income exceeds a certain threshold: in 2016 the clawback starts to kick in at $72,809 and is fully clawed back at $118,055, according to Morneau Sheppel. – msn.com
What About Your CPP? Should You Be Taking It Earlier Or Later?
It all depends on how much money you already have saved for retirement. If very little, the argument is that you should consider taking it at 60 years. If on the other hand you have a good stash and defer receiving your Canada Pension, then you could consider taking it at 70.
Again the real choice here is do you have enough saved up to tide you over until you need to start your Canada Pension.
To wait or not to wait…
To wait or not to wait: this question makes sense, of course, only if you have a choice. If you retire at 60 with little money saved away, you will absolutely need to start your CPP payments immediately. What makes a choice possible is having a six-figure nest-egg to tide you over until you choose to start your CPP pension.
Few people appreciate how punitive it is to start CPP early, or how beneficial it can be to defer it beyond age 65. Data from government sources reveals a great prospensity to begin CPP benefis as soon as one is eligible – which is at age 60. In 2015, 42 per cent of Canadians who began CPP benefits were 60 years old. A mere 6 per cent postponed the first payment beyond age 65. – Financial Post
Before you make any decision, consult with your adviser. Are you thinking about taking your OAS and CPP earlier or later?