Retirement Planning, Tax Planning

Deferring Government Benefits

When Canadians reach their 60’s, they have decisions to make surrounding CPP & OAS benefits.

The Canada Pension Plan (CPP) provides contributors and their families with partial replacement of earnings in the case of retirement, disability or death. Most individuals who work in Canada outside Quebec contribute to the CPP. When it comes to retirement benefits, individuals are eligible at the age of 60 to start collecting their CPP.  However, the amount will be reduced by 0.6% for each month the pension commences before age 65.  Alternatively, the CPP gets increased by 0.7% for each month the pension gets deferred past age 65, up to age 70.  Age 65 is viewed as the “default” age to commence CPP.  For individuals who do not need the CPP income at age 65, it can be worthwhile to defer CPP, as demonstrated in the chart below:

 NO DEFERRALDEFER 1 Year (8.4% increase)DEFER 5 Years (42% increase)
Monthly Amount$800$867$1,136
Total at Age 75$96,000$93,658$68,160
Total at Age 80$144,000$145,690$136,320
Total at Age 85$192,000$197,722$204,480
Total at Age 90$240,000$249,754$272,640

Another form of income provided by the federal government is Old-Age Security (OAS).  While CPP is calculated based on employment income, OAS is based on Canadian residency.  Similarly to CPP, OAS benefits will be increased by 0.6% for each month that someone defers receiving their OAS, up to age 70 when the increase would reach 36%.  Furthermore, as of Canada Revenue Agency’s 2023 figures, for eligible individuals who have net world income in excess of $86,912, their OAS begins to be “clawed back.” If the individual is aged 65 to 74 and they have over $141,917 of annual income, their OAS is reduced to zero ($147,418 is the threshold for those age 75 and over).  Under a scenario such as that, deferring OAS becomes even more prevalent.  The below chart shows the potential additional earnings if someone were to defer their OAS:

 NO DEFERRALDEFER 1 Year (7.2% Increase)DEFER 5 Years (36% Increase)
Monthly Amount$600$643$816
Total at Age 75$72,000$69,466$48,960
Total at Age 80$108,000$108,058$97,920
Total at Age 85$144,000$146,650$146,880
Total at Age 90$180,000$185,242$195,840

*the above numbers have been rounded to provide a simplified look

For more information on government benefit programs such as the Canada Pension Plan and Old-Age Security, contact Jeff Graham at (604) 363-7549 or jeff@firstoakfinancial.ca.

DISCLAIMER: this commentary is provided for general informational purposes only and does not constitute financial, insurance, investment, tax, legal or accounting advice.