Maximize your government benefits
Timing plays a big role when it comes to getting the most out of your government benefits in retirement. It’s something many people don’t realize when they decide to take their Canada Pension Plan (CPP) and Old Age Security (OAS) benefits as soon as they can, instead of taking them at a later age.
The CPP and OAS benefits provide a source of stable, lifelong, inflation-adjusted retirement income. Your monthly CPP retirement benefit can start as early as age 60 and as late as age 70, while your monthly OAS benefit can begin as early as age 65 and as late as age 70.
It can pay to wait
For every year before age 65, your CPP benefit is reduced by 7.2%. For every year after age 65, your CPP benefit is increased by 8.4%. That means that if you decide to access your CPP benefits when you turn 60, you’re choosing to get 36% less on each CPP benefit cheque. However, if you wait until your 70th birthday, you’ll get 42% more on each CPP benefit cheque.
For each additional year you wait past age 65 to take OAS, your annual benefits increase by 7.2%. If you choose to access OAS at age 70, you’re choosing to get 36% more on each OAS benefit cheque.
What would be better – getting a lower number of larger-sized benefit cheques by accessing CPP and OAS benefits at age 70, or getting a greater number of smaller-sized benefit cheques by accessing CPP and OAS benefits before age 70?
It depends on your individual circumstance. If you have a modest income, it might be better to take smaller cheques earlier. If you are middle- or higher-income, it might be better to take larger cheques later.
When you enroll in my65+, we’ll calculate how much you can expect from CPP and OAS, as well as the Guaranteed Income Supplement (GIS), and show you how they fit into your overall retirement planning, depending on when you decide to access these government benefits.
Accessing your retirement income benefits earlier: The advantages for modest-income individuals
If you are a modest-income Canadian, you could qualify for GIS, which is an extra monthly benefit for Canadians at and above age 65 with little or no retirement income other than what they get from OAS. In 2020, your income level at and above age 65 would need to meet the following to be able to qualify for GIS (excluding OAS income):
|Annual income excluding OAS pension is less than:
|Maximum GIS monthly payment amount
|Single, widowed or divorced
|Couple, and your partner receives
the full OAS pension
|Couple, and your partner does not receive an OAS pension or Allowancei
|Couple, and your partner receives
You can apply for GIS when you turn 65. You must meet all of the following criteriaii:
- Your income is low enough (see above table)
- You qualify for OAS
- You qualify for OAS on the combined OAS/GIS application form
John Stapleton’s guide to retirement planning is a useful resource for modest-income Canadians and includes instructions on how to apply for GIS.
If you qualify for GIS and do not receive social assistance (e.g., welfare or disability), you might want to take CPP when you turn 60, since you will have little or no retirement income other than OAS, which starts at age 65. When you turn 65, you will likely get GIS and OAS.iii
You will be getting smaller CPP cheques than if you wait, but you will likely need some retirement income when you turn 60. Also, CPP reduces your GIS by 50 cents or more per dollar. If you take CPP early, you are getting smaller CPP cheques, so your GIS benefits will be reduced less than if you take CPP later. iv
If you are receiving social assistance (e.g. Ontario Disability Support), you might want to wait until age 65 to access your CPP benefits, because CPP will reduce your social assistance money.v
You can still work and continue to contribute to your CPP between ages 60 and 65. Contributing to your CPP while working results in an additional post-retirement benefit and will increase your future retirement income. If you want to stop paying into your CPP, you can opt to do so at age 65. Your contributions to your CPP will stop at age 70 even if you are still working.
Accessing your retirement income benefits later: The advantages for middle- and higher-income individuals
If your expected income level at and above age 65 is higher than the thresholds set for GIS, you might want to delay taking your CPP and OAS benefits – you likely don’t need the extra retirement income from CPP as soon as you turn 60. Some experts have estimated that generally if you live until at least age 82, delaying access to CPP until age 70 is better.vi Yet less than one percent of Canadians employ this strategy.vii Of course, if you know that you will have a shorter life expectancy than 82, then accessing CPP before age 70 may be better.
In order to plan conservatively for retirement, you may want to plan for a longer lifespan than your average life expectancy by waiting to “turn on” either or both CPP and OAS benefits until you are closer to age 70 and save more through my65+ and/or through other retirement savings plans. This way you don’t have to rely on CPP and OAS benefits until you’re 70 years old.
Because CPP and OAS benefits last as long as you live, as well as protect against inflation risk, delaying access to them can also help increase protection against the risk of outliving your other retirement savings.
i The Allowance is a benefit available to modest-income individuals aged 60 to 64 who are the spouse or common-law partner of a Guaranteed Income Supplement (GIS) recipient. https://www.canada.ca/en/services/benefits/publicpensions/cpp/old-age-security/guaranteed-income-supplement/allowance.html
ii John Stapleton, “Low Income Retirement Planning” (2020)
iii John Stapleton, “Low Income Retirement Planning” (2020)
iv John Stapleton, “Low Income Retirement Planning” (2020)
v John Stapleton, “Low Income Retirement Planning” (2020)
vi John Heinz, “Your Canada Pension Plan questions answered,” The Globe and Mail (Sep 27, 2019).
vii Fred Vettese, “Why You Should Wait to Age 70 to Start to Collect CPP Benefits,” Financial Post (Aug 16, 2016).