When to take government benefits
There’s no way of knowing whether to delay
Dear Money Lady: Should I collect my government pensions at 60 or delay to when I am 65 or 70 to get a higher monthly amount? Thanks,
Jacob
There are two ways of thinking when deciding to take your government benefits.
Most advisers will tell their clients to defer the Canada Pension Plan and Old Age Security until they are 70 to get the maximum benefit from the Canadian government.
There is quite a difference in these amounts. The maximum annual CPP benefit in 2022 at age 60 is $9,628, at 65 is $15,043 and at 70 is $20,512. With OAS, the maximum annual benefit at 65 is $7,784.04 and $10,586 at 70.
But can you afford to wait until you are 70 to get more?
The only way to answer this question is to know how long you will live. Everyone’s future is uncertain, so this could be a calculated risk.
Delaying the benefit until you are 70 and continuing to contribute definitely ensures you will receive a larger monthly amount, but that is only good if you live well into your 90s.
If you delay your benefit but die before 85, you have short-changed yourself and not taken advantage of what you have paid into your entire working career.
The decision to take your government benefits earlier or later should be one you make when you plan your retirement. Monthly cash flow, overall health and perhaps even simple genetics all play a part in making your decision.
Plan your retirement income needs every year. Create a budget and determine just how much income you will need and how it will be taxed. Start by counting your OAS + CPP benefits first, then add on your company pension funds, LIRA/ LIF payments and then your RRSP/RIFS.
Additional funds for extra spends should be paid for from your TFSA to avoid triggering clawbacks with the Canada Revenue Agency. The clawback income threshold for 2022 benefits is $81,761.
Today, everyone seems to be living longer and we are continually told that retirement could last 25 to 30 years, but there is no cookie-cutter answer. If you opt to take your benefit at 60, you ensure an income for five years before OAS and ultimately reduce the possibilities of an OAS clawback.
You can also apply to assign up to 50 per cent of the benefit to a spouse in a lower tax bracket. This is a great way to maximize tax savings and can be easily changed back at any time.
Short of knowing when we will die, there is no real way of knowing whether to delay or take benefits earlier. Some feel the entire process is too complicated and time consuming to warrant consideration, but do not forget all the years you have paid into these programs.
Make sure you plan your retirement strategy wisely and definitely take advantage of all the benefits you are entitled to.
Christine Ibbotson is author of How to Retire Debt Free & Wealthy and Don’t Panic – How to Manage your Finances and Financial Anxieties During and After the Coronavirus. If you have a money question, visit askthemoneylady.ca, and check out the Money Lady’s podcast at Saltwire.com.