When to take your pension - and when to wait

27 November, 2013

Filed Under: Retirement Planning | Tax Planning

Did you know that you can defer taking your Old Age Security pension?


For many years we have had the option to defer taking our CPP as late as age 70 and, consequently, receive a higher amount at that age, but as of July 2013, you can also defer taking your OAS pension for up to five years.

There have been a number of changes to our Canadian retirement pension system and it is important to know how they might affect you so you can plan your retirement income well in advance.

One of the most frustrating things for retired Canadians is the potential of losing their Old Age Security (OAS) benefits due to a clawback. Many who face this reduction, if not elimination of the OAS, feel they are being penalized for good saving habits and good planning to put themselves into the position of having a higher income in retirement.

As it stands now, if you earn more than $70,954 in 2013, your Old Age Security benefits will start to be clawed back. This means you will have to repay 15% for every dollar you made over this threshold. It is completely gone if you make as much as $114,793.

There are many people who would consider earning that high level of income in retirement a good problem to have, but what about those people who are unable to retire at age 65 and are still facing a clawback of this income? More and more frequently, we are finding the situation where people are working well into their late 60s and early 70s because they have not saved enough for retirement, don't have a pension and still have some debt to clear. In these situations, every dollar is important and if they are earning more than $114,793 after the age of 65, the OAS pension is completely lost to them if they elected to take it when it became available.

The current maximum OAS pension is $6,611.88 per year and the full amount is available to those who have lived in Canada for 40 years after the age of 18. For every year the pension is deferred, the annual pension is increased by 7.2%.

In 2023, our OAS eligibility will gradually shift from age 65 to 67 by 2029, at which time you will be able to defer taking your OAS from age 67 to age 72.

Those who currently qualify for the full OAS and find themselves still working at age 65 might be better off applying for the pension if they are earning less than the clawback threshold. If they are earning more than $70,954 though, it may make sense to hold off until stop working.

Determining whether or not you should defer taking your OAS pension will involve knowing what income you can expect to receive in retirement, planning a tax-efficient income stream, and doing the math well in advance so you can maximize the benefits available.

As seen on The Toronto Sun.