Tag Archives: Old Age Security

Old Age Security: Take it now or later?

By Sheryl Smolkin

07Feb-OASapp

When you are planning to fully or partially retire, there are many decisions to make. Most Canadians are aware that they can elect to start receiving their Canada Pension anytime between age 60 and 70.

But many do not know that as of July 2013 if they become eligible for OAS benefits at age 65 they can also choose to defer receiving benefits for up to five years.

Regardless of whether you choose to defer your OAS or not, you must apply for benefits from this program when you wish to begin receiving payments.  It may make sense to wait, however, if at age 65 your income is still high enough that your benefits would be fully or partially clawed back. That would occur if you have net income between $71,592 and $115,716 on your tax return, and assuming you expect it to decline in future.

OAS is paid to seniors over 65 who are Canadian citizens or legal residents and have lived in Canada for at least 10 years after turning age 18. People living outside Canada at the time of application must have resided in Canada for at least 20 years after their 18th birthday. Your employment history is not a factor. A full OAS benefit is based on 40 years of Canadian residence.

For the period beginning January 2014, maximum OAS benefits are $551.54 per month or $6,618,48 per year. Benefits are indexed to inflation and adjusted quarterly. If you decide to delay collecting OAS beyond age 65, the benefit will be increased by 0.6 per cent for each month of delay to a maximum of 36%.

Therefore, based on the current annual benefit level (excluding future inflation), the pension you receive beginning at age 70 will be $9001.13.

Marissa Verskin, a senior tax manager at Toronto accounting firm Crowe Soberman, says the decision on whether to delay collecting OAS or claim it right away should depend on your personal situation. This includes your life expectancy, current and projected future income level and your expected rate of return.

Some of the other circumstances that may influence your decision are if you have chosen to work beyond age 65 or if you anticipate receiving a large one-time capital gain or lump sum at retirement (i.e., for accumulated sick leave credits or severance pay).

Doug Runchey of DR Pensions Consulting spent 32 years with Human Resources and Skills Development Canada. He says if you choose to defer receiving OAS beyond age 65 you can’t “double dip.”

That means if you are only eligible for a partial OAS pension because you have less than the 40 years of residence required for a full benefit, you can’t use the deferral period to both increase your OAS pension by counting it as additional years of residence and also receive a 0.6 per cent per month increase for voluntary deferral.

Service Canada is required to count the deferral period either as additional years of residence or a period of voluntary deferral — whichever is of the greatest benefit to the client.

Runchey also says there could be another collateral advantage to voluntary deferral of OAS. “If you delay and increase your OAS by 36 per cent to $9001.13 per year, you also effectively increase the maximum income claw back threshold to $131,599 from $115,716,” he says.

If you have started receiving your OAS benefits within the last six months but think you can benefit from the deferral, you can write to Service Canada and ask them to cancel your benefits for now. Once your request is approved, you will have to pay back the benefits received. Then you can reapply for OAS at a later date.

By 2023, gradual changes in the age of OAS eligibility from age 65 to age 67 will be fully phased in. This change will not affect OAS applicants or recipients born before March 31, 1958. But people born between April 1, 1958 and January 31, 1962 will have a date of eligibility between ages 65 and 67. For example, a person born in June or July 1961 will be not be eligible to collect OAS until age 66 plus eight months.

Also see:
Old Age Security
Changes to the Old Age Security program – Service Canada
Voluntary deferral of OAS – Retire Happy
Getting what’s yours when it comes to government pensions

Nov 25: Best from the blogosphere

By Sheryl Smolkin

blogospheregraphic

Today we report on a series of interesting blogs with no particular theme.

If reality shows like Income Property have you thinking about whether or not you should buy and rent out part of your house to help cover the mortgage, you may want to read Sean Cooper’s blog 5 Lessons Learned as a First Time Landlord on Million Dollar Journey.

There is a lot of media coverage lately about the merits of buying index funds to keep fees down and ultimately earn more than if you invest your savings in actively traded mutual funds. On Boomer & Echo, Robb Engen says active investing may not be dead yet in  Score One For Active Management? Check Out These Index Beating Funds.

Every dollar counts when you retire, so you want to make sure you get everything that’s coming to you from the Canada Pension Plan. But on Retire Happy, Jim Yih says that of the CPP audits that he has conducted in the past six months, almost half of the clients were receiving less than they were entitled to because not all earnings were included in the pension calculation. He has suggestions how you can ensure you are being paid the correct amount of CPP.

My Own Advisor gives a Financial Literacy month primer on Old Age Security benefits and offers his controversial wish for OAS:  keep it afloat but overhaul this sacred cow so any individual senior making $70,000 or more is ineligible for OAS benefits.

And finally, on Brighter Life, Kevin Press asks, Should we worry about seniors living in poverty? Answering his own question, he says that although one in five Canadians is worried about being able to cover basic living expenses in retirement, we live in a country considered a world leader in the fight against senior citizen poverty.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere. Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.