Questions About Canadian Retirement Benefits, Answered!
Do you have questions about CPP? Should you take it as early as possible, or put it off as late as you can?
There are tons of different opinions about the best strategy here, but at the end of the day you have to make the right choice for your own unique situation. So take a look at the questions and answers below to see if this helps shed some light on what the right option will be for you.
Know your cash flow
If you are over 60 and experiencing cash flow issues, and if you have few other sources of funds, that would tilt the argument in favour of taking CPP earlier than 65, Mr. McShane says. Similarly, if you have a lot of high-interest debt, starting CPP early could be advantageous. Some retirees are keen to grab CPP as early as possible because they are worried that the plan might not be around in later years. But the CPP is on solid financial ground and such fears are unfounded, Mr. McShane says.
How’s your health?
If your health is deteriorating and you have concerns about your longevity, taking CPP early could make sense because you might not otherwise live long enough to see much, if any, of your benefits. On the other hand, “if you expect to live a very long life, delaying the start of your pension can result in thousands of dollars more in benefits over your lifetime,” says Doug Runchey, who runs DR Pensions Consulting in the Comox Valley on Vancouver Island. However, he adds that, if you are under 65 “and disabled to the point that you are incapable of working, you should consider applying for a CPP disability pension instead of an early retirement pension” because the disability pension is higher than an early, reduced pension and converts to a full pension at 65.
If you are retired and have fewer than 39 years of maximum CPP contributions (generally what’s required to receive a full pension at 65), “you may want to consider taking your CPP early,” Mr. Runchey says. That’s because, if you delay receiving CPP, “your calculated retirement pension might decrease with each additional year of zero contributions, which will offset part of the increase that you receive by waiting,” he says.
If you have employment income, your CPP will likely be taxed at a higher rate than if you delay CPP until you are no longer working, Mr. Runchey says. Prior to 2012, if you were receiving CPP and still working, you did not make CPP contributions (regardless of your age). Starting in 2012, if you are under 65 and still working while receiving CPP, you and your employer are required to make CPP contributions. These contributions go toward the new Post-Retirement Benefit (PRB), which is added to your current retirement benefit. If you are age 65 to 70 and working while receiving CPP, you can choose to make contributions or opt out.
– via The Globe and Mail
What About OAS?
There are other considerations than just CPP. Another decision to make is when you’ll take OAS – Old Age Security.
Below is a breakdown about why some people are taking OAS as early as possible.
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.
In my case, it seems likely that some or all of my OAS benefits will be clawed back once my RRSP becomes a RRIF at the end of my 70th year. In the meantime, I see a six-year window for taking OAS in my 60s with minimal chance of clawback so in the spirit of never saying no to free government money I intend to exercise that option.
My advisor also sees early OAS as a hedge on CPP deferral, just in case you pass away earlier than anticipated. CPP works off a bigger dollar base, so there are more dollars to be gained by deferring CPP than OAS, which at best pays out $570.52 a month in 2016. Adrian Mastracci, president of Vancouver-based KCM Wealth, calculates someone eligible for maximum CPP can boost benefits from $1,092 at age 65 to $1,540 at 70. The comparable OAS figures are $570 and $775, so the “extra” gained by deferral is $448 for CPP: twice as much as the extra $205 gained by deferring OAS.
– via MSN
Are you deferring your government benefits, or taking them early? Do you plan to treat CPP and OAS differently?