By Adrian Mastracci, KCM Wealth
Special to the Financial Independence Hub
Some important homework is in store for those retiring during 2016. Age 65 was the normal age to begin receiving CPP/OAS pensions.
A few timelines have changed recently. The changes are about deferring CPP/OAS pension benefits to age 70.
Your finances will need review vis-a-vis the personal circumstances. Here’s my summary of pension deferrals (figures rounded):
2016 maximum CPP pension is about $1,092/mo at age 65.
Starting CPP pension after age 65 increases benefits by 0.7%/month of deferral, up to age 70.
Individuals who start CPP at age 70 receive a maximum 42% more, versus starting it at 65.
Hence, delaying CPP from age 65 to 70 raises pension benefits near $1,550/month.
Electing to receive CPP before age 65 reduces the pension by 36% at age 60.
Those employed after age 65 can make voluntary CPP contributions up to age 70.
Requesting your “CPP Statement of Contributions” provides the personal estimates.
2016 maximum OAS pension is $570/mo at age 65 (benefits are not available before age 65). OAS pension can be deferred up to 60 months after becoming eligible, typically at age 65.
Delaying OAS increases benefits by 0.6%/month delayed, up to a maximum of 36% at age 70. Therefore, deferring OAS from age 65 to 70 raises the pension to near $775/month.
My highlights of CPP/OAS values at age 60, 65 and 70 develop like this:
|Pension||Max @Age 60||Max @Age 65||Max @Age 70|
Making your decisions
The CPP/OAS pension combination is an important part of Canada’s retirement plans.
Start your decision process by mulling over my two main questions:
- Does a family member require special needs, say a retirement home?
- Is it preferable for the family to receive CPP/OAS benefits early or later?
I suggest the better answer is “later,” unless health is poor or funds are needed badly.
Deferring one or both pensions keeps more options open for needs of later years.
Analyzing these items helps decide the timeline to receive your CPP/OAS pensions:
- Retirement income sources.
- Employment prospects.
- Adequacy of retirement portfolio.
- Family longevity, say to age 90 and beyond.
- Rate of sustainable draw from the portfolio.
- Impact of inflation on cashflows.
- Implications of possible investing losses.
- Other potential health issues, like Ahlzeimers or home care.
- Whether 2016 OAS clawback applies to one or both spouses.
- 2016 OAS clawback per spouse ranges from net income of $73,760 to $119,400.
There are no financial benefits in deferring CPP or OAS pensions past age 70.
Hence, those age 70 and over should apply now for both pensions.
Say two spouses receive 75% of the maximum CPP/OAS entitlements at age 70.
That brings in total family benefits near $41,850/yr versus $29,920/yr at age 65.
Recipients who defer one or both pensions also benefit from a higher base for indexing.
Starting your CPP and OAS early implies receiving less annual indexing for one’s lifetime.
Your goal is to assemble the best combination of CPP/OAS benefits for your family.
US citizens living in Canada will have a similar exercise on Social Security benefits.
Every family has plenty of variables to mull over to make retirement happen.
Adrian Mastracci, MBA, is president and portfolio manager for Vancouver-based KCM Wealth Management Inc., specializing in designing and stewarding retirement portfolios.