The tidal wave of baby boomers is now rolling toward retirement. To develop realistic plans around household income, boomers want to know how CPP (Canada Pension Plan) and OAS (Old Age Security) fit into their futures.
When their parents retired, it was simple: CPP and OAS began at age 65. Today we have many more options.
A – The Basics
CPP pays a monthly taxable pension to retired Canadians who contributed to the Plan through employment, such that the more you earned when working … the more you have coming to you in retirement (to a maximum of $1012.50 per month at January 2013).
OAS, while also paying a monthly taxable benefit, is the same for all Canadians over 65 who meet the base requirements: $546.07 per month at January 2013.
Both are adjusted periodically based on the Consumer Price Index (reviewed annually for CPP and quarterly for OAS).
B – The Complications
Today Canadians can choose when they want to begin receiving CPP and OAS. The amount of your benefit is determined by your choice.
- Start taking CPP early – You can initiate CPP payments as early as age 60 but your pension is reduced by 0.54% for each month under age 65. For example someone taking CPP at 62 in 2013 will see their pension reduced by 19.4% from what they would have received at 65 (36 months X 0.54%/month).
- Delay starting CPP – You can defer receiving CPP until as late as age 70 with the added benefit of a 0.7% increase for every month you wait past 65. So someone taking CPP at 70 would receive the maximum 42% more than at age 65 (60 months X 0.7%).
- Taking CPP while continuing to work – You can now trigger CPP anytime after age 60 - even if you are employed - without any work interruption.
- Delay starting OAS – Like CPP, retirees who now delay receiving OAS benefits will receive an additional 0.6% per month of deferral to a maximum of 36% at age 70 (60 months X 0.6%) beginning July 2013.
- Changes to OAS eligibility – In spring 2012, the government announced changes to OAS such that current eligibility at age 65 will increase to 67 for those born after 1957.
- The OAS Clawback – OAS must be repaid (or “clawed back”) if an individual’s net income is over $70,954 for 2012. The clawback is 15%, meaning that all of the OAS received would be clawed back for a retiree whose net income is over $114,640.
C – The Analysis
There are a number of alternative scenarios to consider, but we can help with the details. We make it as easy as A-B-C.