On February 12, 2020, Logan Wealth Management kicked off its 2020 webinar series with guest presenter, Marlene C. Buxton BA, CFP®, CLU®.  Marlene is the principal Fee-Only Financial Planner of Buxton Financial Inc. This presentation was entitled: Should you take CPP and OAS as soon as it’s available?  A Video of this webinar can be found here.

PART 3 OF 3

Important changes to CPP between 2012 and 2016; An important change to OAS; How to calculate CPP benefits; Variables and strategies to consider when deciding when to start taking CPP and OAS benefits

Important changes to CPP between 2012 and 2016

Four key changes were made to CPP in 2012 that were phased in up to 2016:

1. Post-retirement contributions are now mandatory for people working between ages 60 and under 65
2. There is no longer a requirement for people to stop working for 2 months before starting their pension
3. The number of years that can be dropped out of the CPP benefit calculation has been increased from 7 to 8
4. The penalty for starting to receive retirement benefits before age 65 are higher, but the incentive to delay starting is also higher

Here are the implications of these changes:

These adjustments have changed the crossover point (the age at which all payments received are equal). This does not factor in inflation or investment return and is projected only for comparative purposes using 2011 CPP payment amounts.  (reference: Your Retirement Income Blueprint by Daryl Diamond)

An important change to OAS

There are now increased incentives to delay starting OAS benefits.

How to calculate CPP benefits

The easiest way to calculate your CPP benefit is to go to the CRA My Account website, follow the link to Service Canada, and go to “CPP Statement of Contributions”.  This shows a list of your contributions and your pensionable earnings from when you were 18 up to now.  As we saw in Blog #1 of this webinar, if you have children, you can disregard all the years you were the caregiver for a child under age 7.  You can also disregard your 8 lowest earning years.  To get an approximate idea of where you would be at, take the remaining years and find the average amount of % of maximum.  This gives you an estimate of what percentage of the maximum amount you are entitled to receive. 

Variables and strategies to consider when deciding when to start taking CPP and OAS benefits

While it is often a preferred strategy to take funds from your least flexible income streams first (e.g. locked-in RRSPs), there are more factors to consider, and you should determine which ones are priorities for you:

1. How long do you expect to live? Speculating on your longevity is obviously only a guess, but you can base it on how long older relatives have lived.  For example, if you foresee living into your late 80s or older, you may want to defer starting to take benefits; if you don’t foresee living that long, you may want to start to take benefits earlier so you receive as much of them as possible before passing away.
2. Do you need the funds? If you do, you may not want to defer starting the benefits.
3. How much do you have in other taxable registered accounts? For example, if you have significant assets in RRSPs, you may want to consider starting to redeem them earlier rather than later in your retirement since you cannot hold money in RRSPs past the calendar year you turn age 71.  At age 72, you must take a minimum amount from your RRIF which is a percentage of the account balance each year based on your age.  This RRIF minimum may push your income over the OAS threshold so some or all of your OAS will be clawed back. 
4. Do you have a defined benefit pension plan? If so, you may not want to defer CPP and OAS benefits too long.  You might not receive benefits that are as high, but you will receive them for longer.
5. Is your estate value a top concern? What kind of legacy do you want to leave?
6. Are you worried about outliving your money? You want to make sure you have enough for the rest of your life.

It’s best to do multiple calculations with specific numbers based on different ages you might pass away.  What may be good for you at one age, may not be as good at another.   As always, we encourage you to consult your advisor for further details.

Disclaimer: Please note that the information presented here is intended as general information only.  It reflects the thoughts and opinions of Logan Wealth Management and should not be construed as investment advice. Please consult your adviser to determine whether this information is applicable to your personal situation.