The federal government has two main programs to help with expenses in retirement. Canada Pension Plan (CPP) benefits are based on contributions and Old Age Security (OAS) is based on residency. CPP monthly benefits are reduced if you take them before age 65, and increased if you take them after age 65, up to age 70. OAS monthly benefits increase if you take them after age 65 up to age 70.
There are several factors to consider when determining when to draw CPP and OAS benefits:
Income Needs. If someone age 60 requires extra income to fund expenses the choice is obvious, take CPP. By taking it at age 60, CPP benefits are reduced by 36% (0.6% per month. 7.2% per year prior to age 65). If income is required prior to age 65, consider drawing down RRSPs and other investments first to avoid the CPP reduction of 7.2% per year.
Life Expectancy. If you are in poor health and expect a lower life expectancy, take CPP. If your life expectancy is higher, defer CPP and OAS. The cumulative benefit of taking CPP at age 60 vs. waiting till age 65 is around age 74.
Working past age 65 and CPP and OAS income is not required. By waiting till age 70, CPP benefits increase by 42% (0.7% per month, 8.4% per year) and OAS increases by 36% (0.6% per month, 7.2% per year).
Another option is to take the benefit and invest in an RRSP or TFSA. Most Canadians are auto enrolled for OAS so if you want to defer OAS, you must let Service Canada know. CPP must be applied for.
OAS Claw back. Individuals who earn over $80,000 will see their OAS benefit reduced or clawed back.
A rule of thumb is if you need the income or no longer have employment earnings, you should take the benefits. However, every person has unique circumstances. As a retirement income specialist, I can assist you with these decisions and help you complete the application forms.
* Information has been sourced from https://www.canada.ca/en/services/benefits/publicpensions.html
Jim Hummel, CFP® CKA®