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By Jillian Koch - JMH & Co

CPP & Old Age Security – When is the Right Time?

Aug 16, 2021 | 11:26 AM

Since I’ve jumped into the world of accounting, the most popular question I’ve come across is inevitably “When should I start receiving my CPP or OAS?”

Unless you have a crystal ball, there will always be a little risk involved in making this decision as it comes down to your life expectancy. You can apply for it as early as age 60 or wait until age 70. You just have to decide what is best for you.

Isn’t 65 the age when I should receive it?

65 has been the typical age that most people have started to claim CPP. According to Stats Canada, the average age for retirement is 64.5 so it makes sense that this is when the majority of people will look towards CPP as a way to supplement their income. Receiving CPP as soon as retirement starts can help individuals combat any financial stress they may feel.

I want that money as soon as possible so that I can enjoy it!

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This is a fair concern for clients. Why wait until 70 or even 65 when you could start receiving the money at 60 instead? Shouldn’t you receive it as soon as possible to fully appreciate it?

However, if you decide to take your CPP early instead of receiving it at 65, you end up forfeiting 36% (or 7.2% per year).

Expecting to live until 100?

Probably best to defer that CPP until age 70! While that might seem like a bad choice, by deferring your CPP until 70, you gain an additional 42% compared to taking it at 65. Yes, 42%! In general, this pays off for you if you live past 81 years of age.

And if you look at current life expectancies in Canada, the average Canadian has a life expectancy of over 82 years and that number is only expected to increase in the coming years.

Let’s look at some easy math on this:

You are entitled to the maximum of $1,203.75/month once you are 65 years old (or $14,445/year).

If you start taking it at 60, you are going to receive roughly $9,245/year (losing nearly $5,500 per year!). But if you waited until 70, you are going to receive $20,512/year (gaining $6,067 on an annual basis and over doubling the amount you are receiving at age 60)!

If you live until the day before your 90^th birthday, you potentially could have earned $430,750 by deferring until age 70, $375,570 by starting at age 65 or $268,589 by receiving it age 60. Obviously, this doesn’t take into the national wage growth (which suggests the loss on taking it early would be closer to 38.8%) or the potential income you could earn by investing the money.

What about Old Age Security?

OAS is very similar to CPP in that you can opt to delay payment until 70 (there is no option to receive OAS early). However, the benefit for delaying OAS is lower than with CPP. Rather than receiving a 42% increase, you will only receive a 36% (or 7.2% per year). However, there is still a benefit to deferral if you are still working or want to draw down your RRSPs early, as your OAS will be clawed back 15 cents for every $1 earned over $79,054.

So what should you do?

If you have other sources of retirement savings that you can draw on, it makes sense to defer your CPP and OAS. The math is clear that you will gain more the longer you wait for it (just remember that after 70, there is no further benefit to delaying it). Consider transferring some of your RRSPs into a RIF at 65 and start drawing on them instead.

If you need to take either CPP or OAS in order to retire comfortably at 65, take your OAS first! You gain more by deferring your CPP than you will on your OAS.

Before applying for these benefits, don’t be afraid to reach out to your tax advisor! They can help you make the best decision based on your situation and your long-term plans.