Senior Living: The pension problem

Timing is crucial when you collect your dues

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Should you take your government pension at age 60 or delay it until age 65 or 70 to get a higher monthly amount?

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There are two ways to think about when deciding to take your government benefits. Most advisors will tell their clients to defer both CPP/QPP and OAS until age 70 to get the maximum benefit from the Canadian government.

And there is quite a difference in these amounts. The maximum annual CPP/QPP benefit (2022) at age 60 is $9,628, at age 65 it is $15,043 and at age 70 it is $20,512. With OAS, the maximum annual benefit (2022) at age 65 is $7,784.04 and $10,586 at age 70. But can you afford to wait until you are 70 to have more?

The only way to answer this question is how long you will live. Everyone’s future is uncertain, so this could be a calculated risk. Delaying the benefit until you’re 70 and continuing to contribute certainly guarantees that you’ll receive a higher monthly amount, but that’s only good if you’re living well into your 90s. See, if you delay your benefit ; but die before age 85, you have injured yourself and have not benefited from a benefit to which you have contributed throughout your professional career.

The decision to collect your government benefits sooner or later should be made when you plan for your retirement. Monthly cash flow, overall health, and maybe even simple genetics all play a part in making your decision.

Plan for your retirement income needs each year. Create a budget and determine how much income you will need and how it will be taxed. Start by counting your OAS + CPP/QPP benefits first; then add your company pension funds, LIRA/LIF payments, and then your RRSPs/RIFs. Additional funds for additional expenses should be paid from your TFSA to avoid triggering a clawback from the CRA. The income clawback threshold for your 2022 benefits is now $81,761.

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Today, everyone seems to live longer and we are continually told that retirement could last 25-30 years, but there is no cookie-cutter answer here. If you choose to take your benefits at age 60, you secure income for five years before OAS and ultimately reduce your OAS clawback.

You can also request to allocate up to 50% of the benefit to a spouse in a lower tax bracket. It’s a great way to maximize tax savings and can be easily changed at any time. Unless we know when we’re dying, there’s no real way to know whether to delay or take your benefits sooner.

Some Canadians feel that the whole process is too complicated and time-consuming to be worth considering; but do not forget all the years during which you contributed to these programs. Make sure you plan your retirement strategy wisely and definitely take advantage of all the benefits to which you are entitled.

— Christine Ibbotson has written four books on finance, including the best-selling How to Retire Debt Free & Wealthy. [email protected]