PTBOCanada Featured Post: Matthews + Associates Helps You Plan For Retirement

Matthews + Associates works with members of the community in Peterborough to establish financial simplicity, clarity, and future growth while building strong relationships with their clients.

While Matthews + Associates offers our clients services like Tax Planning, Risk Management and Estate Planning, we excel at Retirement Income Planning.

In Episode 18 “Canada Pension Plan and Old Age Security Timing” of our podcast “Your Retirement Planning Simplified”,  available on Apple Podcasts, Spotify, Stitcher, Google Podcasts, or by RSS, we discuss the key differences between CPP and OAS, the importance of thinking ahead to ensure you have enough money to last you throughout retirement, why you should not make retirement decisions lightheartedly, and the benefit of consulting with a professional about your retirement plan. Below we discuss the intricacies of applying for CPP and OAS in terms of timing and planning.

A recent study by Financial Planning Canada and the National Institute for Aging looks at the impact of delaying ones Canada Pension Plan (CPP) and Old Age Security (OAS) benefits.

Although their research and equations tell us that delaying taking Canada Pension Plan and Old Age Security is beneficial until age 70, we recognize that not everyone lives their lives according to equations.

You may have many questions about how to optimize CPP and OAS benefits. However, two of the most important questions to consider are when to start these income streams and how to work them into your retirement plan.

CPP Strategies

Only 1 per cent of Canadians delay their Canada Pension Plan to age 70, despite it being the most optimal strategy. It's important to know that if you take CPP at any time before age 65, there’s a penalty and reduction in income. For example, the difference between taking CPP at age 60 versus age 70 is a 122 per cent difference in the monthly benefit. To put it plainly, if you were entitled to $1000 a month at age 60, if you waited until age 70, it would be $2,220 per month.

Although best practices indicate that delaying CPP to 70 is optimal, there are times when it makes sense to take it early. If you retire before age 55 it could make sense to take CPP because of how they do their calculations. Another example is if there’s any reason to suspect a shortened life expectancy, it makes sense to collect the benefit early.

OAS Strategies

It could make sense for certain individuals to take OAS at 65 because they could be more likely to hit the clawback threshold after age 70 when other retirement income like Registered Retirement Income Fund (RRIF) minimum income comes into play.

However, the rule of thumb for OAS is the same as for CPP. In simplified terms, it’s best to delay to age 70 as there is a 0.6 per cent monthly increase in the OAS benefit which means a 7.2 per cent increase every year, and if you delay the full five years up to 70, that’s a 36 per cent increase in the monthly income that you will receive, resulting in a significant income enhancement. It’s also important to keep in mind that by delaying you will also start your inflation indexing from a higher benefit amount.

Something else to be aware of is that OAS is not a guaranteed benefit. Some people apply at age 65 while they are still working believing they are entitled to the benefit only to cancel or delay due to clawbacks. If your income is above $81,761.00 in 2022 the benefit will begin to be clawed back. In this scenario, it is a better option to start your OAS benefit once you’ve retired or turned 70 and you don’t have any more earned income.

What We’re Solving For

At the end of the day, what we’re solving for when looking at the timing and application of Canada Pension Plan and Old Age Security is to make sure that you maintain dignity and independence in retirement.

When creating your retirement plan it’s essential to understand the purpose and timing of inflation-adjusted benefits like the Canada Pension Plan (CPP) and Old Age Security (OAS). Even if we don’t live our lives, or make decisions based on equations, it’s still necessary to look at the math. And there is real value in speaking to someone who is experienced working with retirees to determine the optimal timing and implementation of CPP or OAS for your retirement plan.

It's also important to keep in mind that every situation is unique and if you have more questions, you can take a deeper dive on CPP and OAS timing here where Matthews + Associates explore the topic in greater depth on our podcast “Your Retirement Planning Simplified” and in their blog article “Canada Pension Plan (CPP) and Old Age Security (OAS) Timing.”

In our podcast '“Your Retirement Planning Simplified”, available on Apple Podcasts, Spotify, Stitcher, Google Podcasts, or by RSS, we answer those burning questions about retirement. We help you learn how to optimize your investments, reduce your retirement risks, lower taxes and build true wealth, in an easy and accessible way.

To learn more about Matthews + Associates, find them online:

Matthews + Associates
Website: https://matthewsandassociates.ca/

Instagram: @matthewsassociates
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