Government benefits – collect early or delay?

May 12, 2022   ·   0 Comments

By Christine Ibbotson

Ask the Money Lady

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.

That’s a great question Jacob – one that a lot of people ask.  There are two ways of thinking when deciding to take your government benefits.  Most advisors will tell their clients to defer both CPP/QPP and OAS until they are 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 65 it is $15,043, and at 70 it is $20,512.  With OAS, the maximum annual benefit (2022) at age 65 is $7,784.04 and $10,586 at 70 years of age.  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 90’s.  You see, if you delay your benefit; but die before 85, you have short-changed yourself and not taken advantage of a benefit that you have paid into for your entire working career. 

The decision to take your government benefits earlier or later should be one that 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/QPP 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 claw backs with the CRA.  The claw back income threshold for your 2022 benefits is now $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 here.   If you do opt to take your benefit at age 60, you ensure an income for five years before OAS and ultimately reduce the possibilities of an OAS claw-back.

You can also apply to assign up to 50% 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 your benefits earlier.  Some Canadians 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.

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