By Adrian Mastracci, KCM Wealth
Special to the Financial Independence Hub
The changes to focus on pertain to deferring receipt of CPP and OAS pension benefits.
However, those changes may not be well understood.
Today’s maximum CPP payment at age 65 is $1,065 per month. Similarly, maximum OAS payment at age 65 is $570 per month.
The first consideration is to answer this question:
“Are your CPP/OAS benefits more valuable early or later in retirement?”
I suggest most should answer “later.”
Inflation and health costs can seriously affect retirements, say after age 75.
The CPP/OAS pension combination is an important component of retirement plans.
Analyze these items in deciding when to start receiving CPP/OAS pensions:
Present and later sources of retirement income estimates.
Employment status today and in the future.
Accumulated retirement portfolio.
Family longevity and health.
The 2015 OAS repayment threshold is net income of $72,800 per spouse.
Full 2015 OAS repayment is reached at net income of $118,400 per spouse.
There is no benefit in deferring CPP or OAS pension past age 70.
Those age 70 or over should apply for both now.
Here is my summary of deferrals:
If you start your CPP pension after age 65, the benefit will increase by 0.7 percent for each month delayed up to age 70. Individuals who start receiving CPP at age 70 will receive a maximum 42% more versus starting it at 65.
Hence, delaying CPP the maximum 60 months raises benefits to $1,510/mo starting at age 70. If you take CPP before age 65, your pension will be reduced by up to 34.8% at age 60 in 2015 (36.0% in 2016).
Those employed after age 65 can make voluntary CPP contributions and be entitled to larger CPP benefits (PRB). The maximum PRB for one year equals 1/40th of the maximum CPP retirement pension.
The PRB cannot be divided with a former spouse or shared with a current spouse.
The “CPP Statement of Contributions” provides some estimates.
Commencing July 2013, you can defer receiving OAS pension for up to 60 months after the date you become eligible for OAS. If you delay OAS pension, your payment will increase by 0.6% for every month delayed, up to a maximum of 36% at age 70.
Similarly, delaying OAS the maximum 60 months raises benefits to $775/mo starting at age 70. OAS is not available before age 65.
Monthly pension summary
eferring OAS from age 65 to 70 raises the pension to $775/mo.
Monthly pension summary
||Max @Age 60
||Max @Age 65||Max @Age 70|
Recipients who defer also benefit from a higher base for annual indexing.
Starting CPP and OAS early implies receiving less indexing for your lifetime.
There is important planning in delaying CPP and OAS.
Make sure to consider all your options.
Adrian Mastracci, MBA, is president and portfolio manager for Vancouver-based KCM Wealth Management Inc., specializing in designing and stewarding retirement portfolios.