Wealth Strategies: Considerations for Commencing CPP & OAS
Milestone Wealth Management Ltd. - May 26, 2022
As one draws closer to retirement and in turn commencing CPP and OAS, there isn’t a right and wrong answer per se on when to do so. In order to arrive at and make an informed decision, however, there are several options to bear in mind.
Firstly, if life expectancy is a factor that can be strongly assumed given current health, family history etc., one can take this into account. Obviously if life expectancy is shorter, one would want to commence government benefits at the earliest available date. And conversely if life expectancy and/or employment is extended, one would likely delay commencing.
Cash flow is another consideration, whereby one would again obviously begin withdrawing government benefits at an earlier date if the funds are truly needed to facilitate lifestyle.
Another school of thought would be to compare and contrast the benefit of investing the funds, if they’re not required for cash flow purposes. This strategy will differ depending on the individual’s risk level, type of investment(s) and timeframe the funds are invested.
Marginal tax rates and income-tested consequences are also a consideration, specifically for OAS that contains a clawback threshold income level of $79,054 for the period of July 2021 to June 2022. One should in turn be mindful of when to start accepting CPP if this pushes taxable income beyond the OAS threshold and therefore clawed back.
Lastly, we should review the parameters of CPP and OAS, with respect to commencing and consequent adjustments to the benefit amounts.
CPP can be initiated at a minimum age of 60 and a maximum age of 70 whereby benefit amounts are either reduced or increased. If prior to age 65, the CPP benefit amount is reduced by 0.6% for each month prior to age 65, for a maximum reduction of 36%. If initiated after age 65, the benefit is increased by 0.7% for each month after age 65, to a maximum increase of 42% at age 70.
The OAS benefit is increased by 0.6% per month after age 65 to a maximum of 36%.
One must commence CPP by age 70 and there is no financial advantage to drawing OAS beyond age 70.
As always, reviewing these items with an appropriate professional is always recommended.