Last month, Dave Lee, a Senior Wealth Advisor with Scotia Wealth Management in White Rock, shared what pensions are available in Canada, and when you can start receiving them.
“There’s a lot to consider before you start taking CPP and OAS. Your decision may have a big effect on your finances for decades to come, so it’s important to consult an expert,” Dave says.
When should I take CPP and OAS?
You can apply to receive CPP (Canada Pension Plan) any month you choose between your 60th birthday and your 70th birthday, and you can start receiving OAS (Old Age Security) between 65 and 70. The longer you wait, the more you’ll receive each month.
“Unless you’re facing a significant health issue, it’s best to ‘keep your hand out of the cookie jar’ and hold off on receiving CPP,” Dave says. “People often worry they’ll die at age 64 without redeeming any benefits. That’s a personal tragedy, but not usually a financial hardship. But many more people are living into their late 80s and 90s while the cost of living grows year after year. Larger inflation-adjusted pensions can help ensure you have enough money to remain comfortable.”
The OAS ‘Clawback’
Officially called a “pension recovery tax,” OAS clawback for the 2022 tax year kicks in at a net income of $81,761. For every dollar you earn above this threshold, you must repay $0.15. Those with incomes above $133,527 will end up losing 100 per cent of their OAS.
The OAS clawback calculation is made every year, so one year of unusually high income only affects one year of OAS entitlements.
“Avoiding OAS claw back can involve strategic planning that spans several years. Depending on your income level, a Total Wealth Planner will suggest a variety of strategies,” Dave says. These may include:
- Adjusting the timing and amount of RRIF withdrawals (larger withdrawals prior to starting OAS may help you avoid OAS clawback).
- The timing of triggering unrealized capital gains
- The pace at which you take income from your corporation
- Income splitting with your spouse and other family members
- Whether to defer taking OAS and/or CPP. Both pensions count as “net income” for the purposes of determining if OAS will be clawed back.
“You may be tempted to follow the same plan as a co-worker or sibling, but no two people are on the same path. My advice often isn’t even the same for spouses!” Dave says.
There are a lot of moving parts when optimizing retirement plans, and it’s important to work with someone who understands ALL of them. On your own this can seem overwhelming, but a Total Wealth Plan prepared by a team of experts who explain what you need to know in words you understand can make a world of difference.
Call 604.535.4743 to book an appointment with Dave Lee in White Rock, or email email@example.com to discuss investments, life insurance, retirement planning, estate planning, generating income and minimizing your taxes. Follow him on Facebook, Twitter and LinkedIn for more financial insights.
ScotiaMcLeod, a division of Scotia Capital Inc.